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 Warrior Met Coal Inc. (NYSE:HCC).
Is Warrior Met Coal Inc. (NYSE:HCC) a buy here? Money managers were in a pessimistic mood. The number of bullish hedge fund positions were cut by 5 recently. Warrior Met Coal Inc. (NYSE:HCC) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistic is 35. Our calculations also showed that HCC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 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.
James Dondero of Highland Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 recent hedge fund action surrounding Warrior Met Coal Inc. (NYSE:HCC).
Do Hedge Funds Think HCC 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 were bullish on this stock, a change of -19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HCC over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Warrior Met Coal Inc. (NYSE:HCC) was held by Third Avenue Management, which reported holding $29.7 million worth of stock at the end of June. It was followed by Contrarius Investment Management with a $22.9 million position. Other investors bullish on the company included Renaissance Technologies, Platinum Asset Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Warrior Met Coal Inc. (NYSE:HCC), around 3.93% of its 13F portfolio. Amitell Capital is also relatively very bullish on the stock, designating 2.09 percent of its 13F equity portfolio to HCC.
Judging by the fact that Warrior Met Coal Inc. (NYSE:HCC) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that slashed their full holdings heading into Q3. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $3.4 million in stock, and Todd J. Kantor's Encompass Capital Advisors was right behind this move, as the fund dropped about $2.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Warrior Met Coal Inc. (NYSE:HCC). These stocks are Travere Therapeutics, Inc. (NASDAQ:TVTX), HealthStream, Inc. (NASDAQ:HSTM), Global Partners LP (NYSE:GLP), OneSpaWorld Holdings Limited (NASDAQ:OSW), Forrester Research, Inc. (NASDAQ:FORR), Byline Bancorp, Inc. (NYSE:BY), and Gracell Biotechnologies Inc. (NASDAQ:GRCL). This group of stocks' market values match HCC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TVTX,25,352352,-2 HSTM,14,67764,0 GLP,2,9146,0 OSW,12,155686,1 FORR,8,112838,1 BY,13,38653,5 GRCL,9,143202,-6 Average,11.9,125663,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $130 million in HCC's case. Travere Therapeutics, Inc. (NASDAQ:TVTX) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 2 bullish hedge fund positions. Warrior Met Coal Inc. (NYSE:HCC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HCC is 59.3. 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 HCC as the stock returned 48.1% 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.