How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Nesco Holdings, Inc. (NYSE:NSCO).
Is Nesco Holdings, Inc. (NYSE:NSCO) worth your attention right now? Prominent investors are getting less optimistic. The number of bullish hedge fund positions shrunk by 7 in recent months. Our calculations also showed that NSCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NSCO was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with NSCO 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium 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 take a peek at the key hedge fund action regarding Nesco Holdings, Inc. (NYSE:NSCO).
How are hedge funds trading Nesco Holdings, Inc. (NYSE:NSCO)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -39% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in NSCO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alyeska Investment Group was the largest shareholder of Nesco Holdings, Inc. (NYSE:NSCO), with a stake worth $14.4 million reported as of the end of September. Trailing Alyeska Investment Group was Angelo Gordon & Co, which amassed a stake valued at $3.4 million. BlueCrest Capital Mgmt., Arrowstreet Capital, and Millennium 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 Angelo Gordon & Co allocated the biggest weight to Nesco Holdings, Inc. (NYSE:NSCO), around 0.44% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, setting aside 0.22 percent of its 13F equity portfolio to NSCO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Alyeska Investment Group).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nesco Holdings, Inc. (NYSE:NSCO) but similarly valued. We will take a look at DRDGOLD Limited (NYSE:DRD), Rimini Street, Inc. (NASDAQ:RMNI), SmartFinancial, Inc. (NASDAQ:SMBK), and CapStar Financial Holdings, Inc. (NASDAQ:CSTR). This group of stocks’ market values resemble NSCO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DRD | 4 | 6630 | 1 |
| RMNI | 4 | 12681 | -2 |
| SMBK | 7 | 29723 | 2 |
| CSTR | 8 | 12324 | 4 |
| Average | 5.75 | 15340 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $22 million in NSCO’s case. CapStar Financial Holdings, Inc. (NASDAQ:CSTR) is the most popular stock in this table. On the other hand DRDGOLD Limited (NYSE:DRD) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Nesco Holdings, Inc. (NYSE:NSCO) 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 NSCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NSCO were disappointed as the stock returned -49.8% 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.