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Did Hedge Funds Drop The Ball On Hecla Mining Company (HL)?

Debasis Saha

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hecla Mining Company (NYSE:HL).

Is Hecla Mining Company (NYSE:HL) a bargain? Hedge funds are getting more optimistic. The number of long hedge fund positions rose by 2 lately. Our calculations also showed that HL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HL was in 10 hedge funds' portfolios at the end of September. There were 8 hedge funds in our database with HL positions at the end of the previous quarter. 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to view the recent hedge fund action surrounding Hecla Mining Company (NYSE:HL).

How have hedgies been trading Hecla Mining Company (NYSE:HL)?

At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in HL a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HL A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Hecla Mining Company (NYSE:HL), with a stake worth $8.8 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $5.3 million. Millennium Management, Sprott Asset Management, and Winton 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 Sprott Asset Management allocated the biggest weight to Hecla Mining Company (NYSE:HL), around 0.5% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to HL.

As aggregate interest increased, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Hecla Mining Company (NYSE:HL). Citadel Investment Group had $5.3 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is David E. Shaw's D E Shaw.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hecla Mining Company (NYSE:HL) but similarly valued. We will take a look at Phibro Animal Health Corp (NASDAQ:PAHC), PPDAI Group Inc. (NYSE:PPDF), ArQule, Inc. (NASDAQ:ARQL), and Columbus McKinnon Corporation (NASDAQ:CMCO). All of these stocks' market caps are closest to HL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAHC,17,52455,1 PPDF,8,11005,1 ARQL,24,218791,-1 CMCO,22,63804,2 Average,17.75,86514,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $22 million in HL's case. ArQule, Inc. (NASDAQ:ARQL) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 8 bullish hedge fund positions. Hecla Mining Company (NYSE:HL) is not the least popular stock in this group but hedge fund interest is still below average. 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 HL as the stock returned 40.5% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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