CBL & Associates Properties, Inc. (CBL) Sinks After WSJ Report that the SEC and FBI are Investigating the Company

CBL & Associates Properties, Inc. (NYSE:CBL) shares have retreated by more than 7% today after the Wall Street Journal reported that the SEC and FBI are looking into whether the company’s officials filed false information in its financial statements to various banks when applying for financing. Some former CBL employees have alleged that the company may have inflated its occupancy rates and rental income when reporting to banks. Glancy Prongay & Murray has also launched an investigation into the allegations on behalf of CBL shareholders. For its part, CBL & Associates Properties, Inc. (NYSE:CBL) has adamantly denied the story, and says that neither the FBI or SEC have contacted its executives over any accounting problems, but investors don’t appear to be convinced and are selling now.

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in the first quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with finance among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about CBL & Associates Properties, Inc. (NYSE:CBL) in this article.

CBL & Associates Properties, Inc. (NYSE:CBL) investors should pay attention to a decrease in support from the world’s most elite money managers of late. CBL was in 16 hedge funds’ portfolios at the end of the first quarter of 2016. There were 18 hedge funds in our database with CBL positions at the end of the previous quarter. 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 United Natural Foods, Inc. (NASDAQ:UNFI), Superior Energy Services, Inc. (NYSE:SPN), and Ormat Technologies, Inc. (NYSE:ORA) to gather more data points.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

Of the funds tracked by Insider Monkey, James H. Litinsky’s JHL Capital Group has the biggest position in CBL & Associates Properties, Inc. (NYSE:CBL), worth close to $42.8 million, corresponding to 4.1% of its total 13F portfolio. The second most bullish fund manager is Jim Simons of Renaissance Technologies, with a $16.7 million position; less than 0.1% of his fund’s 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group, and D. E. Shaw’s D E Shaw.

On the next page we’ll look at some funds that sold off positions in CBL during Q1, as well as compare the stock to a handful of others with similar market caps.

Seeing as CBL & Associates Properties, Inc. (NYSE:CBL) has witnessed declining sentiment from the smart money, it’s easy to see that there is a sect of hedge funds that slashed their full holdings by the end of the first quarter. Intriguingly, Eric Halet and Davide Serra’s Algebris Investments said goodbye to the largest stake of the 760 funds followed by Insider Monkey, totaling an estimated $1.8 million in stock. David Costen Haley’s fund, HBK Investments, also sold off its stock, about $1.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to CBL & Associates Properties, Inc. (NYSE:CBL). We will take a look at United Natural Foods, Inc. (NASDAQ:UNFI), Superior Energy Services, Inc. (NYSE:SPN), Ormat Technologies, Inc. (NYSE:ORA), and South Jersey Industries Inc (NYSE:SJI). All of these stocks’ market caps are similar to CBL’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $91 million in CBL’s case. Superior Energy Services, Inc. (NYSE:SPN) is the most popular stock in this table. On the other hand South Jersey Industries Inc (NYSE:SJI) is the least popular one with only 9 bullish hedge fund positions. CBL & Associates Properties, Inc. (NYSE:CBL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SPN might be a better candidate to consider a long position.

Disclosure: None