Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider BMC Stock Holdings, Inc. (NASDAQ:BMCH) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
BMC Stock Holdings, Inc. (NASDAQ:BMCH) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Bloomin’ Brands Inc (NASDAQ:BLMN), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), and Magellan Health Inc (NASDAQ:MGLN) to gather more data points. Our calculations also showed that BMCH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
William Martin of Raging Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the key hedge fund action encompassing BMC Stock Holdings, Inc. (NASDAQ:BMCH).
Hedge fund activity in BMC Stock Holdings, Inc. (NASDAQ:BMCH)
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in BMCH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Coliseum Capital, managed by Christopher Shackelton and Adam Gray, holds the number one position in BMC Stock Holdings, Inc. (NASDAQ:BMCH). Coliseum Capital has a $104.1 million position in the stock, comprising 27.7% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, with a $41 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish comprise Chuck Royce’s Royce & Associates, William C. Martin’s Raging Capital Management and Ken Grossman and Glen Schneider’s SG 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 27.72% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, designating 5.93 percent of its 13F equity portfolio to BMCH.
Seeing as BMC Stock Holdings, Inc. (NASDAQ:BMCH) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few money managers who were dropping their positions entirely heading into Q4. Intriguingly, David Keidan’s Buckingham Capital Management dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $7.8 million in stock. Minhua Zhang’s fund, Weld Capital Management, also sold off its stock, about $1.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to BMC Stock Holdings, Inc. (NASDAQ:BMCH). These stocks are Bloomin’ Brands Inc (NASDAQ:BLMN), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Magellan Health Inc (NASDAQ:MGLN), and Atkore International Group Inc. (NYSE:ATKR). This group of stocks’ market caps are closest to BMCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLMN | 18 | 220934 | 0 |
| KTOS | 16 | 39987 | -6 |
| MGLN | 19 | 381495 | 1 |
| ATKR | 23 | 183994 | 2 |
| Average | 19 | 206603 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $335 million in BMCH’s case. Atkore International Group Inc. (NYSE:ATKR) is the most popular stock in this table. On the other hand Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks BMC Stock Holdings, Inc. (NASDAQ:BMCH) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately BMCH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BMCH were disappointed as the stock returned -37.9% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
