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. Is Bed Bath & Beyond Inc. (NASDAQ:BBBY) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Bed Bath & Beyond Inc. (NASDAQ:BBBY) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that BBBY 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).
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 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 41 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.
Christopher Kiper of Legion Partners Asset 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 we’re going to take a glance at the new hedge fund action surrounding Bed Bath & Beyond Inc. (NASDAQ:BBBY).
What have hedge funds been doing with Bed Bath & Beyond Inc. (NASDAQ:BBBY)?
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in BBBY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Contrarius Investment Management held the most valuable stake in Bed Bath & Beyond Inc. (NASDAQ:BBBY), which was worth $200.7 million at the end of the third quarter. On the second spot was Legion Partners Asset Management which amassed $89.6 million worth of shares. Arrowstreet Capital, Southpoint Capital Advisors, and Legion Partners Asset 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 Legion Partners Asset Management allocated the biggest weight to Bed Bath & Beyond Inc. (NASDAQ:BBBY), around 23.21% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, designating 10.52 percent of its 13F equity portfolio to BBBY.
Consequently, some big names were breaking ground themselves. Masters Capital Management, managed by Mike Masters, created the most valuable position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Masters Capital Management had $16.5 million invested in the company at the end of the quarter. William Harnisch’s Peconic Partners LLC also made a $12.1 million investment in the stock during the quarter. The other funds with brand new BBBY positions are D. E. Shaw’s D E Shaw, George McCabe’s Portolan Capital Management, and Jay Genzer’s Thames Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Bed Bath & Beyond Inc. (NASDAQ:BBBY) but similarly valued. We will take a look at Norbord Inc. (NYSE:OSB), EVO Payments, Inc. (NASDAQ:EVOP), PriceSmart, Inc. (NASDAQ:PSMT), and Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). This group of stocks’ market valuations are closest to BBBY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OSB | 16 | 51708 | 9 |
| EVOP | 22 | 89278 | 7 |
| PSMT | 18 | 51318 | 8 |
| AUPH | 21 | 641333 | 8 |
| Average | 19.25 | 208409 | 8 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $484 million in BBBY’s case. EVO Payments, Inc. (NASDAQ:EVOP) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) 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 BBBY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BBBY were disappointed as the stock returned -73.9% 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.
