In this article we will check out the progression of hedge fund sentiment towards Houghton Mifflin Harcourt Co (NASDAQ:HMHC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Houghton Mifflin Harcourt Co (NASDAQ:HMHC) undervalued? The smart money was taking a bearish view. The number of bullish hedge fund bets dropped by 4 lately. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistic is 37. Our calculations also showed that HMHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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Matthew Hulsizer of PEAK6 Capital
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Do Hedge Funds Think HMHC Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HMHC over the last 24 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Rubric Capital Management held the most valuable stake in Houghton Mifflin Harcourt Co (NASDAQ:HMHC), which was worth $41.2 million at the end of the second quarter. On the second spot was Engine Capital which amassed $31 million worth of shares. Water Street Capital, Litespeed Management, and No Street Capital 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 Litespeed Management allocated the biggest weight to Houghton Mifflin Harcourt Co (NASDAQ:HMHC), around 22.9% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, designating 9.86 percent of its 13F equity portfolio to HMHC.
Seeing as Houghton Mifflin Harcourt Co (NASDAQ:HMHC) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds that slashed their entire stakes in the second quarter. Intriguingly, Don Morgan’s Brigade Capital sold off the biggest position of all the hedgies tracked by Insider Monkey, totaling about $6.1 million in stock. David Cohen and Harold Levy’s fund, Iridian Asset Management, also dumped its stock, about $2.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to Houghton Mifflin Harcourt Co (NASDAQ:HMHC). These stocks are IAMGOLD Corporation (NYSE:IAG), Broadmark Realty Capital Inc. (NYSE:BRMK), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), e.l.f. Beauty, Inc. (NYSE:ELF), Radware Ltd. (NASDAQ:RDWR), Kaman Corporation (NYSE:KAMN), and Materialise NV (NASDAQ:MTLS). This group of stocks’ market caps are similar to HMHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IAG | 19 | 124352 | -3 |
| BRMK | 12 | 91152 | 0 |
| BHLB | 11 | 43655 | 0 |
| ELF | 30 | 150083 | 9 |
| RDWR | 19 | 260927 | 2 |
| KAMN | 12 | 177937 | -2 |
| MTLS | 14 | 201133 | 6 |
| Average | 16.7 | 149891 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.7 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $207 million in HMHC’s case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the least popular one with only 11 bullish hedge fund positions. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HMHC is 44.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on HMHC as the stock returned 19.6% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
