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Is US Ecology Inc. (ECOL) A Good Stock To Buy?

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards US Ecology Inc. (NASDAQ:ECOL).

Is ECOL a good stock to buy? US Ecology Inc. (NASDAQ:ECOL) investors should pay attention to a decrease in activity from the world's largest hedge funds lately. US Ecology Inc. (NASDAQ:ECOL) was in 6 hedge funds' portfolios at the end of March. The all time high for this statistic is 22. Our calculations also showed that ECOL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most shareholders, hedge funds are seen as underperforming, old financial tools of the past. While there are greater than 8000 funds in operation at present, Our researchers look at the aristocrats of this group, approximately 850 funds. These money managers control the lion's share of the hedge fund industry's total asset base, and by keeping an eye on their first-class picks, Insider Monkey has identified numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $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 take a look at the latest hedge fund action encompassing US Ecology Inc. (NASDAQ:ECOL).

Do Hedge Funds Think ECOL Is A Good Stock To Buy Now?

At the end of March, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the fourth quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in ECOL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Israel Englander's Millennium Management has the most valuable call position in US Ecology Inc. (NASDAQ:ECOL), worth close to $30 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Raymond J. Harbert of Harbert Management, with a $8.1 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Some other peers that are bullish include David Park's Headlands Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Headlands Capital allocated the biggest weight to US Ecology Inc. (NASDAQ:ECOL), around 5.19% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, designating 3.83 percent of its 13F equity portfolio to ECOL.

Because US Ecology Inc. (NASDAQ:ECOL) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of funds that decided to sell off their entire stakes by the end of the first quarter. At the top of the heap, Jose Fernandez's Stepstone Group said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $2 million in stock. Mika Toikka's fund, AlphaCrest Capital Management, also dropped its stock, about $1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the first 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. We will take a look at Noble Midstream Partners LP (NYSE:NBLX), Azure Power Global Limited (NYSE:AZRE), TriMas Corp (NASDAQ:TRS), Tupperware Brands Corporation (NYSE:TUP), Aclaris Therapeutics, Inc. (NASDAQ:ACRS), Metromile, Inc. (NASDAQ:MILE), and Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX). This group of stocks' market valuations resemble ECOL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBLX,1,263,-2 AZRE,9,47856,0 TRS,11,95301,-3 TUP,16,77569,2 ACRS,30,655030,7 MILE,19,105719,19 FMTX,17,628565,0 Average,14.7,230043,3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $18 million in ECOL's case. Aclaris Therapeutics, Inc. (NASDAQ:ACRS) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 1 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 19.8. 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 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately ECOL wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ECOL investors were disappointed as the stock returned -9.1% since the end of March (through 6/25) 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.