Is NACCO Industries, Inc. (NC) A Good Stock To Buy According To Hedge Funds?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards NACCO Industries, Inc. (NYSE:NC) , and what that likely means for the prospects of the company and its stock.

Is NACCO Industries, Inc. (NYSE:NC) a healthy stock for your portfolio? Money managers are definitely getting less optimistic. The number of long hedge fund investments retreated by 2 lately. NC was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. There were 9 hedge funds in our database with NC positions at the end of the previous quarter. At the end of this article we will also compare NC to other stocks including Exar Corporation (NASDAQ:EXAR), Timkensteel Corp (NYSE:TMST), and Harmonic Inc (NASDAQ:HLIT) to get a better sense of its popularity.

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Now, let’s take a glance at the fresh action surrounding NACCO Industries, Inc. (NYSE:NC).

What have hedge funds been doing with NACCO Industries, Inc. (NYSE:NC)?

Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in NC at the beginning of this year. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Howard Marks’s Oaktree Capital Management has the largest position in NACCO Industries, Inc. (NYSE:NC), worth close to $11.2 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, which holds a $3.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. Intriguingly, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors cashed in the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising about $0.4 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also sold off its stock, about $0.3 million worth.

Let’s go over hedge fund activity in other stocks similar to NACCO Industries, Inc. (NYSE:NC). These stocks are Exar Corporation (NASDAQ:EXAR), Timkensteel Corp (NYSE:TMST), Harmonic Inc (NASDAQ:HLIT), and Sierra Wireless, Inc. (USA) (NASDAQ:SWIR). This group of stocks’ market values are closest to NC’s market value.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $21 million in NC’s case. Exar Corporation (NASDAQ:EXAR) is the most popular stock in this table. On the other hand Sierra Wireless, Inc. (USA) (NASDAQ:SWIR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks NACCO Industries, Inc. (NYSE:NC) is even less popular than SWIR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.