Hedge Funds Are Dumping CONN’S, Inc. (CONN)

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about CONN’S, Inc. (NASDAQ:CONN).

CONN’S, Inc. (NASDAQ:CONN) shareholders have witnessed a decrease in enthusiasm from smart money of late. CONN’S, Inc. (NASDAQ:CONN) was in 12 hedge funds’ portfolios at the end of the third quarter of 2015. There were 24 hedge funds in our database with CONN’S, Inc. (NASDAQ:CONN) positions at the end of the previous quarter. Hedgies could not be blamed for lowering their positions, considering the dismal performance of CONN’S, Inc. (NASDAQ:CONN)’s stock, which lost 39.45% value in the last quarter. In order to understand more about the hedge fund sentiment, we will discuss hedgies that held stakes in the company, at the end of the previous quarter.

At the end of this article, we will also compare CONN’S, Inc. (NASDAQ:CONN) to other stocks, including Heron Therapeutics Inc (NASDAQ:HRTX), iRobot Corporation (NASDAQ:IRBT), and National HealthCare Corporation (NYSEMKT:NHC) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are seen as slow, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at present, we look at the leaders of this group, about 700 funds. These hedge fund managers oversee bulk of all hedge funds’ total capital, and by observing their first-class stock picks, Insider Monkey has deciphered a number of investment strategies that have historically outperformed the market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, let’s review the latest action surrounding CONN’S, Inc. (NASDAQ:CONN).

How are hedge funds trading CONN’S, Inc. (NASDAQ:CONN)?

At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decrease of 50% from one quarter earlier. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Luxor Capital Group, managed by Christian Leone, holds the number one position in CONN’S, Inc. (NASDAQ:CONN). Luxor Capital Group has a $159.4 million position in the stock, comprising 3.6% of its 13F portfolio. The second largest stake is held by Anchorage Advisors, led by Kevin Michael Ulrich and Anthony Davis, holding a $87 million position; 2.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass Jason Karp’s Tourbillon Capital Partners, and Ken Griffin’s Citadel Investment Group.

Because CONN’S, Inc. (NASDAQ:CONN) has witnessed a bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Robert Pohly’s Samlyn Capital sold off the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $57.8 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $16.1 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 12 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to CONN’S, Inc. (NASDAQ:CONN). These stocks are Heron Therapeutics Inc (NASDAQ:HRTX), iRobot Corporation (NASDAQ:IRBT), National HealthCare Corporation (NYSEMKT:NHC), and Monotype Imaging Holdings Inc. (NASDAQ:TYPE). This group of stocks’ market values are closest to CONN’S, Inc. (NASDAQ:CONN)’s market value.

As you can see, these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $456 million in CONN’S, Inc. (NASDAQ:CONN)’s case. Heron Therapeutics Inc (NASDAQ:HRTX) is the most popular stock in this table. On the other hand, National HealthCare Corporation (NYSEMKT:NHC) is the least popular one with only 8 bullish hedge fund positions. CONN’S, Inc. (NASDAQ:CONN) 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, Heron Therapeutics Inc (NASDAQ:HRTX) might be a better candidate to consider a long position.