Should You Avoid Hurco Companies, Inc. (HURC)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Hurco Companies, Inc. (NASDAQ:HURC).

Hurco Companies, Inc. (NASDAQ:HURC) investors should pay attention to a decrease in hedge fund sentiment of late. HURC was in 5 hedge funds’ portfolios at the end of March. There were 6 hedge funds in our database with HURC holdings at the end of the previous quarter. Our calculations also showed that HURC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the fresh hedge fund action encompassing Hurco Companies, Inc. (NASDAQ:HURC).

What have hedge funds been doing with Hurco Companies, Inc. (NASDAQ:HURC)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in HURC 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, Royce & Associates was the largest shareholder of Hurco Companies, Inc. (NASDAQ:HURC), with a stake worth $25 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $3.2 million. Value Holdings LP, Two Sigma Advisors, and Invenomic Capital 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 Value Holdings LP allocated the biggest weight to Hurco Companies, Inc. (NASDAQ:HURC), around 1.19% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.34 percent of its 13F equity portfolio to HURC.

Because Hurco Companies, Inc. (NASDAQ:HURC) has experienced bearish sentiment from the smart money, it’s safe to say that there is a sect of money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that Noam Gottesman’s GLG Partners dropped the biggest investment of all the hedgies followed by Insider Monkey, worth about $1.3 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund dumped about $0 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hurco Companies, Inc. (NASDAQ:HURC) but similarly valued. These stocks are Genesco Inc. (NYSE:GCO), Overseas Shipholding Group, Inc. (NYSE:OSG), Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), and Orchid Island Capital, Inc. (NYSE:ORC). This group of stocks’ market valuations are similar to HURC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $31 million in HURC’s case. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is the most popular stock in this table. On the other hand Orchid Island Capital, Inc. (NYSE:ORC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Hurco Companies, Inc. (NASDAQ:HURC) is even less popular than ORC. Hedge funds dodged a bullet by taking a bearish stance towards HURC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately HURC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HURC investors were disappointed as the stock returned 7.4% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

Disclosure: None. This article was originally published at Insider Monkey.