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In this article we will analyze whether US Ecology Inc. (NASDAQ:ECOL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is ECOL a good stock to buy now? US Ecology Inc. (NASDAQ:ECOL) was in 12 hedge funds' portfolios at the end of September. The all time high for this statistics is 22. ECOL shareholders have witnessed a decrease in hedge fund interest of late. There were 16 hedge funds in our database with ECOL holdings at the end of June. Our calculations also showed that ECOL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to analyze the fresh hedge fund action regarding US Ecology Inc. (NASDAQ:ECOL).
Do Hedge Funds Think ECOL Is A Good Stock To Buy Now?
At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ECOL over the last 21 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Millennium Management, managed by Israel Englander, holds the largest position in US Ecology Inc. (NASDAQ:ECOL). Millennium Management has a $67 million call position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Cyrus Capital Partners, led by Stephen C. Freidheim, holding a $7.8 million position; 1.8% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism contain Steve Pigott's Fort Baker Capital Management, David Park's Headlands Capital and Jose Fernandez's Stepstone Group. In terms of the portfolio weights assigned to each position Stepstone Group allocated the biggest weight to US Ecology Inc. (NASDAQ:ECOL), around 8.11% of its 13F portfolio. Headlands Capital is also relatively very bullish on the stock, setting aside 4.49 percent of its 13F equity portfolio to ECOL.
Seeing as US Ecology Inc. (NASDAQ:ECOL) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few fund managers that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, John M. Angelo and Michael L. Gordon's Angelo Gordon & Co dropped the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $4.2 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund said goodbye to about $1.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as US Ecology Inc. (NASDAQ:ECOL) but similarly valued. These stocks are AudioCodes Ltd. (NASDAQ:AUDC), Regenxbio Inc (NASDAQ:RGNX), Live Oak Bancshares Inc (NASDAQ:LOB), Universal Corp (NYSE:UVV), Lithium Americas Corp. (NYSE:LAC), The ODP Corporation (NYSE:ODP), and TPI Composites, Inc. (NASDAQ:TPIC). This group of stocks' market caps resemble ECOL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUDC,9,25983,-3 RGNX,22,144111,-1 LOB,10,40785,0 UVV,12,74834,-1 LAC,3,3349,2 ODP,18,182264,0 TPIC,20,103800,7 Average,13.4,82161,0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $25 million in ECOL's case. Regenxbio Inc (NASDAQ:RGNX) is the most popular stock in this table. On the other hand Lithium Americas Corp. (NYSE:LAC) is the least popular one with only 3 bullish hedge fund positions. US Ecology Inc. (NASDAQ:ECOL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ECOL is 41. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately ECOL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ECOL investors were disappointed as the stock returned 6.8% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.