We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Spectrum Brands Holdings, Inc. (NYSE:SPB) based on that data.
Is Spectrum Brands Holdings, Inc. (NYSE:SPB) the right pick for your portfolio? The smart money is taking an optimistic view. The number of bullish hedge fund bets rose by 9 in recent months. Our calculations also showed that SPB 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). SPB was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 36 hedge funds in our database with SPB holdings at the end of the previous quarter.
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.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Spectrum Brands Holdings, Inc. (NYSE:SPB).
Hedge fund activity in Spectrum Brands Holdings, Inc. (NYSE:SPB)
At the end of the fourth quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in SPB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Spectrum Brands Holdings, Inc. (NYSE:SPB) was held by Arlington Value Capital, which reported holding $174.8 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $92.2 million position. Other investors bullish on the company included Millennium Management, Moerus Capital Management, and Candlestick Capital Management. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Spectrum Brands Holdings, Inc. (NYSE:SPB), around 13.3% of its 13F portfolio. Arlington Value Capital is also relatively very bullish on the stock, setting aside 11.88 percent of its 13F equity portfolio to SPB.
As one would reasonably expect, key hedge funds have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, established the most outsized position in Spectrum Brands Holdings, Inc. (NYSE:SPB). Candlestick Capital Management had $33.1 million invested in the company at the end of the quarter. Andrew Rechtschaffen’s AREX Capital Management also initiated a $14.5 million position during the quarter. The other funds with brand new SPB positions are Dmitry Balyasny’s Balyasny Asset Management, Brian Scudieri’s Kehrs Ridge Capital, and Ira Unschuld’s Brant Point Investment Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Spectrum Brands Holdings, Inc. (NYSE:SPB) but similarly valued. We will take a look at Select Medical Holdings Corporation (NYSE:SEM), Sunstone Hotel Investors Inc (NYSE:SHO), Quidel Corporation (NASDAQ:QDEL), and Uniqure NV (NASDAQ:QURE). This group of stocks’ market values are similar to SPB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEM | 21 | 127591 | 1 |
| SHO | 22 | 270985 | -3 |
| QDEL | 18 | 120078 | 3 |
| QURE | 44 | 1052404 | 4 |
| Average | 26.25 | 392765 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $556 million in SPB’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand Quidel Corporation (NASDAQ:QDEL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Spectrum Brands Holdings, Inc. (NYSE:SPB) 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately SPB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SPB were disappointed as the stock returned -43.1% during the first two and a half months of 2020 (through March 25th) 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 Q1.
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.
