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Charah Solutions, Inc. (CHRA): Hedge Funds In Wait-and-See Mode

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Charah Solutions, Inc. (NYSE:CHRA).

Charah Solutions, Inc. (NYSE:CHRA) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. 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 Catabasis Pharmaceuticals Inc (NASDAQ:CATB), Ashford Inc. (NYSE:AINC), and Navios Maritime Holdings Inc. (NYSE:NM) to gather more data points. Our calculations also showed that CHRA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_26286" align="aligncenter" width="359"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a gander at the new hedge fund action regarding Charah Solutions, Inc. (NYSE:CHRA).

How are hedge funds trading Charah Solutions, Inc. (NYSE:CHRA)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHRA over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, North Run Capital held the most valuable stake in Charah Solutions, Inc. (NYSE:CHRA), which was worth $2.6 million at the end of the third quarter. On the second spot was Skylands Capital which amassed $0.5 million worth of shares. Renaissance Technologies was 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 North Run Capital allocated the biggest weight to Charah Solutions, Inc. (NYSE:CHRA), around 1.95% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to CHRA.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's now take a look at hedge fund activity in other stocks similar to Charah Solutions, Inc. (NYSE:CHRA). These stocks are Catabasis Pharmaceuticals Inc (NASDAQ:CATB), Ashford Inc. (NYSE:AINC), Navios Maritime Holdings Inc. (NYSE:NM), and RealNetworks Inc (NASDAQ:RNWK). All of these stocks' market caps resemble CHRA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CATB,3,2169,0 AINC,3,1320,-1 NM,4,5471,-1 RNWK,6,16916,-1 Average,4,6469,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in CHRA's case. RealNetworks Inc (NASDAQ:RNWK) is the most popular stock in this table. On the other hand Catabasis Pharmaceuticals Inc (NASDAQ:CATB) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Charah Solutions, Inc. (NYSE:CHRA) is even less popular than CATB. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CHRA, though not to the same extent, as the stock returned 10.4% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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