Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Heritage Global Inc. (NASDAQ:HGBL)? The smart money sentiment can provide an answer to this question.
Is HGBL a good stock to buy? Heritage Global Inc. (NASDAQ:HGBL) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of March. Our calculations also showed that HGBL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare HGBL to other stocks including electroCore, Inc. (NASDAQ:ECOR), Huttig Building Products, Inc. (NASDAQ:HBP), and Soleno Therapeutics, Inc. (NASDAQ:SLNO) to get a better sense of its popularity.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Fred DiSanto of Ancora Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's review the latest hedge fund action regarding Heritage Global Inc. (NASDAQ:HGBL).
Do Hedge Funds Think HGBL Is A Good Stock To Buy Now?
At first quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in HGBL a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Heritage Global Inc. (NASDAQ:HGBL) was held by Ancora Advisors, which reported holding $1 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $0.1 million position. The only other hedge fund that is bullish on the company was Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Heritage Global Inc. (NASDAQ:HGBL) but similarly valued. We will take a look at electroCore, Inc. (NASDAQ:ECOR), Huttig Building Products, Inc. (NASDAQ:HBP), Soleno Therapeutics, Inc. (NASDAQ:SLNO), Castor Maritime Inc. (NASDAQ:CTRM), Oragenics Inc. (NYSE:OGEN), DAVIDsTEA Inc. (NASDAQ:DTEA), and Summit State Bank (NASDAQ:SSBI). This group of stocks' market values are closest to HGBL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECOR,5,1253,2 HBP,3,10764,0 SLNO,8,11931,-4 CTRM,1,5174,-3 OGEN,1,336,0 DTEA,3,451,1 SSBI,1,202,0 Average,3.1,4302,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.1 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $1 million in HGBL's case. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is the most popular stock in this table. On the other hand Castor Maritime Inc. (NASDAQ:CTRM) is the least popular one with only 1 bullish hedge fund positions. Heritage Global Inc. (NASDAQ:HGBL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HGBL is 49.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately HGBL wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HGBL investors were disappointed as the stock returned 1.1% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.