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How do we determine whether Arch Coal, Inc. (NYSE:ARCH) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Arch Coal, Inc. (NYSE:ARCH) the right investment to pursue these days? Prominent investors are becoming less hopeful. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that ARCH isn't among the 30 most popular stocks among hedge funds (see the video below). ARCH was in 27 hedge funds' portfolios at the end of June. There were 28 hedge funds in our database with ARCH 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.
To most shareholders, hedge funds are perceived as unimportant, outdated financial vehicles of the past. While there are over 8000 funds trading at the moment, We look at the bigwigs of this club, approximately 750 funds. These money managers control most of the smart money's total asset base, and by tracking their top picks, Insider Monkey has uncovered many investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the new hedge fund action encompassing Arch Coal, Inc. (NYSE:ARCH).
What have hedge funds been doing with Arch Coal, Inc. (NYSE:ARCH)?
At Q2's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ARCH over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Monarch Alternative Capital held the most valuable stake in Arch Coal, Inc. (NYSE:ARCH), which was worth $109.6 million at the end of the second quarter. On the second spot was Luminus Management which amassed $62.2 million worth of shares. Moreover, Highland Capital Management, Skylands Capital, and Anchor Bolt Capital were also bullish on Arch Coal, Inc. (NYSE:ARCH), allocating a large percentage of their portfolios to this stock.
Since Arch Coal, Inc. (NYSE:ARCH) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain "tier" of fund managers that decided to sell off their full holdings in the second quarter. Interestingly, John Horseman's Horseman Capital Management cut the largest stake of the 750 funds tracked by Insider Monkey, valued at about $14.8 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund cut about $7.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds in the second quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Arch Coal, Inc. (NYSE:ARCH) but similarly valued. These stocks are Group 1 Automotive, Inc. (NYSE:GPI), McGrath RentCorp (NASDAQ:MGRC), SFL Corporation Ltd. (NYSE:SFL), and CareDx, Inc. (NASDAQ:CDNA). This group of stocks' market values are similar to ARCH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GPI,13,153111,0 MGRC,18,141319,-4 SFL,11,36180,5 CDNA,24,169840,-1 Average,16.5,125113,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $365 million in ARCH's case. CareDx, Inc. (NASDAQ:CDNA) is the most popular stock in this table. On the other hand SFL Corporation Ltd. (NYSE:SFL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Arch Coal, Inc. (NYSE:ARCH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ARCH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ARCH were disappointed as the stock returned -20.8% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
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