Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Ramaco Resources, Inc. (NASDAQ:METC) the right pick for your portfolio? Hedge funds are betting on the stock. The number of bullish hedge fund bets moved up by 1 lately. Our calculations also showed that METC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jonathan Barrett of Luminus Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the key hedge fund action encompassing Ramaco Resources, Inc. (NASDAQ:METC).
What have hedge funds been doing with Ramaco Resources, Inc. (NASDAQ:METC)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in METC a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Mangrove Partners, managed by Nathaniel August, holds the largest position in Ramaco Resources, Inc. (NASDAQ:METC). Mangrove Partners has a $2.9 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is Jonathan Barrett and Paul Segal of Luminus Management, with a $0.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish encompass David Harding’s Winton Capital Management, Jay Petschek and Steven Major’s Corsair Capital Management and Mark Wolfson and Jamie Alexander’s Jasper Ridge Partners. In terms of the portfolio weights assigned to each position Mangrove Partners allocated the biggest weight to Ramaco Resources, Inc. (NASDAQ:METC), around 0.35% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to METC.
Now, key money managers have jumped into Ramaco Resources, Inc. (NASDAQ:METC) headfirst. Luminus Management, managed by Jonathan Barrett and Paul Segal, assembled the most outsized position in Ramaco Resources, Inc. (NASDAQ:METC). Luminus Management had $0.2 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.1 million investment in the stock during the quarter. The following funds were also among the new METC investors: Jay Petschek and Steven Major’s Corsair Capital Management, Roger Ibbotson’s Zebra Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s check out hedge fund activity in other stocks similar to Ramaco Resources, Inc. (NASDAQ:METC). We will take a look at Middlefield Banc Corp. (NASDAQ:MBCN), MAM Software Group Inc. (NASDAQ:MAMS), Prudential Bancorp, Inc. (NASDAQ:PBIP), and CB Financial Services, Inc. (NASDAQ:CBFV). This group of stocks’ market caps resemble METC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MBCN | 4 | 14858 | 1 |
| MAMS | 5 | 39958 | 1 |
| PBIP | 4 | 31193 | 0 |
| CBFV | 4 | 3882 | 1 |
| Average | 4.25 | 22473 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $3 million in METC’s case. MAM Software Group Inc. (NASDAQ:MAMS) is the most popular stock in this table. On the other hand Middlefield Banc Corp. (NASDAQ:MBCN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Ramaco Resources, Inc. (NASDAQ:METC) is more popular among hedge funds. 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 METC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on METC were disappointed as the stock returned -8.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.