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Do Hedge Funds Love Quest Resource Holding Corp (QRHC)?

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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Quest Resource Holding Corp (NASDAQ:QRHC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Hedge fund interest in Quest Resource Holding Corp (NASDAQ:QRHC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that QRHC 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). At the end of this article we will also compare QRHC to other stocks including Comstock Mining, Inc. (NYSE:LODE), NetSol Technologies Inc. (NASDAQ:NTWK), and Mannatech, Inc. (NASDAQ:MTEX) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Nelson Obus of Wynnefield Capital

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 let's go over the new hedge fund action regarding Quest Resource Holding Corp (NASDAQ:QRHC).

What have hedge funds been doing with Quest Resource Holding Corp (NASDAQ:QRHC)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in QRHC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Wynnefield Capital, managed by Nelson Obus, holds the largest position in Quest Resource Holding Corp (NASDAQ:QRHC). Wynnefield Capital has a $3.6 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Skylands Capital, managed by Charles Paquelet, which holds a $1 million position; 0.2% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions encompass Mark Broach's Manatuck Hill Partners, Renaissance Technologies and Alexander Mitchell's Scopus Asset Management. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to Quest Resource Holding Corp (NASDAQ:QRHC), around 2.25% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to QRHC.

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 check out hedge fund activity in other stocks similar to Quest Resource Holding Corp (NASDAQ:QRHC). These stocks are Comstock Mining, Inc. (NYSE:LODE), NetSol Technologies Inc. (NASDAQ:NTWK), Mannatech, Inc. (NASDAQ:MTEX), Oragenics Inc. (NYSE:OGEN), One Stop Systems, Inc. (NASDAQ:OSS), KLX Energy Services Holdings, Inc. (NASDAQ:KLXE), and Caladrius Biosciences Inc (NASDAQ:CLBS). All of these stocks' market caps are closest to QRHC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LODE,2,927,0 NTWK,3,4344,-1 MTEX,1,841,0 OGEN,2,485,1 OSS,1,150,0 KLXE,7,2384,-5 CLBS,4,1988,3 Average,2.9,1588,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.9 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $6 million in QRHC's case. KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) is the most popular stock in this table. On the other hand Mannatech, Inc. (NASDAQ:MTEX) is the least popular one with only 1 bullish hedge fund positions. Quest Resource Holding Corp (NASDAQ:QRHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QRHC is 59.8. 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 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 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately QRHC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on QRHC were disappointed as the stock returned 6.8% since the end of September (through 11/27) 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 many of these stocks already outperformed the market so far this year.

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

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