Is US Ecology Inc. (ECOL) A Good Stock To Buy?

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: US Ecology Inc. (NASDAQ:ECOL) .

Is US Ecology Inc. (NASDAQ:ECOL) undervalued? The smart money is surely getting less bullish. The number of long hedge fund positions dropped by 3 lately. ECOL was in 8 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with ECOL positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Healthways, Inc. (NASDAQ:HWAY), Rush Enterprises, Inc. (NASDAQ:RUSHA), and Windstream Corporation (NASDAQ:WIN) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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With all of this in mind, let’s take a gander at the latest action regarding US Ecology Inc. (NASDAQ:ECOL).

What have hedge funds been doing with US Ecology Inc. (NASDAQ:ECOL)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in ECOL heading into this year. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Bares Capital Management, led by Brian Bares, holds the most valuable position in US Ecology Inc. (NASDAQ:ECOL). Bares Capital Management has a $37 million position in the stock, comprising 2.2% of its 13F portfolio. The second most bullish fund manager is Manor Road Capital Partners, led by John Ku, holding a $13.5 million position; 1.9% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism encompass one of the largest hedge funds in the world, Renaissance Technologies, Joel Greenblatt’s Gotham Asset Management and Peter Muller’s PDT Partners. 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.

Because US Ecology Inc. (NASDAQ:ECOL) has sustained falling interest from the smart money, we can see that there was a specific group of money managers who sold off their full holdings in the third quarter. Interestingly, Israel Englander’s Millennium Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $5.4 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.4 million worth of shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as US Ecology Inc. (NASDAQ:ECOL) but similarly valued. We will take a look at Healthways, Inc. (NASDAQ:HWAY), Rush Enterprises, Inc. (NASDAQ:RUSHA), Windstream Corporation (NASDAQ:WIN), and Employers Holdings, Inc. (NYSE:EIG). This group of stocks’ market valuations are closest to ECOL’s market valuation.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $67 million in ECOL’s case. Healthways, Inc. (NASDAQ:HWAY) is the most popular stock in this table. On the other hand Employers Holdings, Inc. (NYSE:EIG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks US Ecology Inc. (NASDAQ:ECOL) is even less popular than EIG. 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.