In this article we are going to use hedge fund sentiment as a tool and determine whether ARC Document Solutions Inc (NYSE:ARC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
ARC Document Solutions Inc (NYSE:ARC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that ARC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare ARC to other stocks including Universal Stainless & Alloy Products (NASDAQ:USAP), Research Frontiers, Inc. (NASDAQ:REFR), and Trinity Biotech plc (NASDAQ:TRIB) to get a better sense of its popularity.
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David Nierenberg of Nierenberg Investment Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to go over the new hedge fund action encompassing ARC Document Solutions Inc (NYSE:ARC).
Do Hedge Funds Think ARC Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2020. By comparison, 5 hedge funds held shares or bullish call options in ARC a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in ARC Document Solutions Inc (NYSE:ARC) was held by Renaissance Technologies, which reported holding $7.4 million worth of stock at the end of December. It was followed by Verdad Advisers with a $5.5 million position. Other investors bullish on the company included Nierenberg Investment Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Verdad Advisers allocated the biggest weight to ARC Document Solutions Inc (NYSE:ARC), around 1.75% of its 13F portfolio. Nierenberg Investment Management is also relatively very bullish on the stock, setting aside 0.34 percent of its 13F equity portfolio to ARC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Tudor Investment Corp. 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 Nierenberg Investment Management).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ARC Document Solutions Inc (NYSE:ARC) but similarly valued. These stocks are Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP), Research Frontiers, Inc. (NASDAQ:REFR), Trinity Biotech plc (NASDAQ:TRIB), Pingtan Marine Enterprise Ltd. (NASDAQ:PME), PhenixFIN Corporation (NASDAQ:PFX), U.S. Well Services, Inc. (NASDAQ:USWS), and Support.com, Inc. (NASDAQ:SPRT). All of these stocks’ market caps are closest to ARC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| USAP | 6 | 15970 | 0 |
| REFR | 2 | 124 | 0 |
| TRIB | 5 | 7584 | 1 |
| PME | 2 | 596 | 1 |
| PFX | 2 | 1100 | 2 |
| USWS | 5 | 3720 | -2 |
| SPRT | 4 | 4595 | 0 |
| Average | 3.7 | 4813 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.7 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $14 million in ARC’s case. Universal Stainless & Alloy Products (NASDAQ:USAP) is the most popular stock in this table. On the other hand Research Frontiers, Inc. (NASDAQ:REFR) is the least popular one with only 2 bullish hedge fund positions. ARC Document Solutions Inc (NYSE:ARC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARC is 64. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately ARC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ARC were disappointed as the stock returned 3.3% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Arc Document Solutions Inc. (NYSE:ARC)
Follow Arc Document Solutions Inc. (NYSE:ARC)
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Disclosure: None. This article was originally published at Insider Monkey.
