At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Burlington Stores Inc (NYSE:BURL) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Burlington Stores Inc (NYSE:BURL) a buy here? The smart money was turning less bullish. The number of bullish hedge fund bets fell by 2 recently. Burlington Stores Inc (NYSE:BURL) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 40. Our calculations also showed that BURL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 40 hedge funds in our database with BURL holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phillip Gross of Adage Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to review the latest hedge fund action surrounding Burlington Stores Inc (NYSE:BURL).
Hedge fund activity in Burlington Stores Inc (NYSE:BURL)
At second quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BURL over the last 20 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Burlington Stores Inc (NYSE:BURL), with a stake worth $462.2 million reported as of the end of September. Trailing Adage Capital Management was Third Point, which amassed a stake valued at $275.7 million. Samlyn Capital, Dorsal Capital Management, and Melvin Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Burlington Stores Inc (NYSE:BURL), around 6.27% of its 13F portfolio. Third Point is also relatively very bullish on the stock, earmarking 3.77 percent of its 13F equity portfolio to BURL.
Since Burlington Stores Inc (NYSE:BURL) has faced bearish sentiment from the smart money, it’s safe to say that there exists a select few hedgies who were dropping their full holdings in the second quarter. It’s worth mentioning that Renaissance Technologies dropped the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $30.5 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund sold off about $11.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Burlington Stores Inc (NYSE:BURL). These stocks are Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), Carnival Corporation (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), and Markel Corporation (NYSE:MKL). This group of stocks’ market caps are similar to BURL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SYF | 46 | 1563925 | 9 |
| FMC | 42 | 548601 | 3 |
| GLPG | 13 | 151392 | -2 |
| MLM | 51 | 1593527 | 7 |
| CCL | 31 | 362150 | 0 |
| Z | 59 | 2299780 | 22 |
| MKL | 33 | 943795 | 1 |
| Average | 39.3 | 1066167 | 5.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.3 hedge funds with bullish positions and the average amount invested in these stocks was $1066 million. That figure was $1475 million in BURL’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Burlington Stores Inc (NYSE:BURL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BURL is 58.7. 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 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately BURL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BURL investors were disappointed as the stock returned 0% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
