Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Quest Resource Holding Corp (NASDAQ:QRHC).
Is Quest Resource Holding Corp (NASDAQ:QRHC) going to take off soon? Investors who are in the know are getting more bullish. The number of long hedge fund positions went up by 1 recently. Our calculations also showed that QRHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). QRHC was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with QRHC positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Nelson Obus of Wynnefield Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing Quest Resource Holding Corp (NASDAQ:QRHC).
Hedge fund activity in Quest Resource Holding Corp (NASDAQ:QRHC)
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in QRHC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Wynnefield Capital was the largest shareholder of Quest Resource Holding Corp (NASDAQ:QRHC), with a stake worth $4 million reported as of the end of September. Trailing Wynnefield Capital was Skylands Capital, which amassed a stake valued at $1 million. Manatuck Hill Partners, Renaissance Technologies, and Scopus Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to Quest Resource Holding Corp (NASDAQ:QRHC), around 2.15% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, designating 0.54 percent of its 13F equity portfolio to QRHC.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, established the biggest position in Quest Resource Holding Corp (NASDAQ:QRHC). Scopus Asset Management had $0 million invested in the company at the end of the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Quest Resource Holding Corp (NASDAQ:QRHC). We will take a look at Stein Mart, Inc. (NASDAQ:SMRT), Armata Pharmaceuticals, Inc. (NYSEAMERICAN:ARMP), Global Self Storage, Inc. (NASDAQ:SELF), and Super League Gaming, Inc. (NASDAQ:SLGG). This group of stocks’ market caps resemble QRHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SMRT | 5 | 234 | 0 |
| ARMP | 1 | 280 | 0 |
| SELF | 2 | 234 | 0 |
| SLGG | 3 | 433 | 2 |
| Average | 2.75 | 295 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $7 million in QRHC’s case. Stein Mart, Inc. (NASDAQ:SMRT) is the most popular stock in this table. On the other hand Armata Pharmaceuticals, Inc. (NYSEAMERICAN:ARMP) is the least popular one with only 1 bullish hedge fund positions. Quest Resource Holding Corp (NASDAQ:QRHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately QRHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on QRHC were disappointed as the stock returned 3.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
