BMC Stock Holdings, Inc. (BMCH): Hedge Funds Cashing Out

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of BMC Stock Holdings, Inc. (NASDAQ:BMCH) based on that data.

Is BMC Stock Holdings, Inc. (NASDAQ:BMCH) the right investment to pursue these days? Money managers are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 6 in recent months. Our calculations also showed that BMCH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). BMCH was in 23 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with BMCH holdings at the end of the previous quarter.

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 58 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.

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action encompassing BMC Stock Holdings, Inc. (NASDAQ:BMCH).

What have hedge funds been doing with BMC Stock Holdings, Inc. (NASDAQ:BMCH)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in BMCH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in BMC Stock Holdings, Inc. (NASDAQ:BMCH) was held by Coliseum Capital, which reported holding $86.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $28 million position. Other investors bullish on the company included Renaissance Technologies, ACK Asset Management, and Raging Capital Management. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to BMC Stock Holdings, Inc. (NASDAQ:BMCH), around 23.39% of its 13F portfolio. ACK Asset Management is also relatively very bullish on the stock, dishing out 7.81 percent of its 13F equity portfolio to BMCH.

Due to the fact that BMC Stock Holdings, Inc. (NASDAQ:BMCH) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few money managers that slashed their entire stakes heading into Q4. At the top of the heap, Ken Grossman and Glen Schneider’s SG Capital Management dumped the biggest stake of all the hedgies followed by Insider Monkey, worth close to $20.5 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $5.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to BMC Stock Holdings, Inc. (NASDAQ:BMCH). We will take a look at Magellan Health Inc (NASDAQ:MGLN), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), MicroStrategy Incorporated (NASDAQ:MSTR), and Innoviva, Inc. (NASDAQ:INVA). This group of stocks’ market values match BMCH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $210 million in BMCH’s case. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is the most popular stock in this table. On the other hand Magellan Health Inc (NASDAQ:MGLN) is the least popular one with only 15 bullish hedge fund positions. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on BMCH as the stock returned 45.2% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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