Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Five Below Inc (NASDAQ:FIVE).
Five Below Inc (NASDAQ:FIVE) investors should pay attention to an increase in support from the world’s most elite money managers of late. FIVE was in 42 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with FIVE positions at the end of the previous quarter. Our calculations also showed that FIVE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dan Loeb of Third Point
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s view the recent hedge fund action surrounding Five Below Inc (NASDAQ:FIVE).
How have hedgies been trading Five Below Inc (NASDAQ:FIVE)?
At Q4’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in FIVE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Five Below Inc (NASDAQ:FIVE) was held by Third Point, which reported holding $153.4 million worth of stock at the end of September. It was followed by Millennium Management with a $92.5 million position. Other investors bullish on the company included Citadel Investment Group, Balyasny Asset Management, and Interval Partners. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Five Below Inc (NASDAQ:FIVE), around 10.86% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, earmarking 4.78 percent of its 13F equity portfolio to FIVE.
Consequently, key money managers have jumped into Five Below Inc (NASDAQ:FIVE) headfirst. Interval Partners, managed by Gregg Moskowitz, assembled the most valuable position in Five Below Inc (NASDAQ:FIVE). Interval Partners had $31.4 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $22.4 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Steven Boyd’s Armistice Capital, and Pasco Alfaro / Richard Tumure’s Miura Global Management.
Let’s go over hedge fund activity in other stocks similar to Five Below Inc (NASDAQ:FIVE). These stocks are Cabot Oil & Gas Corporation (NYSE:COG), Dynatrace, Inc. (NYSE:DT), East West Bancorp, Inc. (NASDAQ:EWBC), and Owens Corning (NYSE:OC). This group of stocks’ market caps match FIVE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COG | 34 | 460767 | -6 |
| DT | 25 | 614519 | 5 |
| EWBC | 29 | 520620 | -1 |
| OC | 47 | 1080101 | 4 |
| Average | 33.75 | 669002 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $669 million. That figure was $615 million in FIVE’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Dynatrace, Inc. (NYSE:DT) is the least popular one with only 25 bullish hedge fund positions. Five Below Inc (NASDAQ:FIVE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately FIVE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FIVE were disappointed as the stock returned -29% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
