Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Halcon Resources Corporation (NYSE:HK) has seen an increase in support from the world’s most successful money managers in recent months. HK was in 13 hedge funds’ portfolios at the end of September. There were 8 hedge funds in our database with HK holdings 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 American Capital Mortgage Investment Crp (NASDAQ:MTGE), Lindsay Corporation (NYSE:LNN), and Triangle Capital Corporation (NYSE:TCAP) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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How are hedge funds trading Halcon Resources Corporation (NYSE:HK)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by 63% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HK over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tyrus Capital, led by Tony Chedraoui, holds the biggest position in Halcon Resources Corporation (NYSE:HK). Tyrus Capital has a $80.3 million position in the stock, comprising 19.8% of its 13F portfolio. On Tyrus Capital’s heels is Brigade Capital, led by Don Morgan, which holds a $7.5 million position. We should note that Brigade Capital is 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.
As industrywide interest jumped, key money managers have been driving this bullishness. Brigade Capital assembled the most valuable position in Halcon Resources Corporation (NYSE:HK). Steve Cohen’s Point72 Asset Management also made a $4.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Mashaal’s Rima Senvest Management, Marc Lasry’s Avenue Capital, and J. Alan Reid, Jr.’s Forward Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Halcon Resources Corporation (NYSE:HK) but similarly valued. We will take a look at American Capital Mortgage Investment Crp (NASDAQ:MTGE), Lindsay Corporation (NYSE:LNN), Triangle Capital Corporation (NYSE:TCAP), and U.S. Physical Therapy, Inc. (NYSE:USPH). All of these stocks’ market caps match HK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTGE | 8 | 77217 | -4 |
| LNN | 7 | 132275 | -1 |
| TCAP | 6 | 9322 | 3 |
| USPH | 14 | 74816 | 3 |
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $106 million in HK’s case. U.S. Physical Therapy, Inc. (NYSE:USPH) is the most popular stock in this table. On the other hand Triangle Capital Corporation (NYSE:TCAP) is the least popular one with only 6 bullish hedge fund positions. Halcon Resources Corporation (NYSE:HK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard USPH might be a better candidate to consider taking a long position in.
Disclosure: None
