“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on The Lovesac Company (NASDAQ:LOVE) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Is The Lovesac Company (NASDAQ:LOVE) a worthy investment right now? The smart money is becoming more confident. The number of bullish hedge fund bets increased by 2 lately. Our calculations also showed that LOVE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LOVE was in 12 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with LOVE positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a peek at the key hedge fund action encompassing The Lovesac Company (NASDAQ:LOVE).
How are hedge funds trading The Lovesac Company (NASDAQ:LOVE)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the second quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in LOVE 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.
Among these funds, Park West Asset Management held the most valuable stake in The Lovesac Company (NASDAQ:LOVE), which was worth $9.3 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $8.5 million worth of shares. Royce & Associates, Skylands Capital, and Venator 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 Venator Capital Management allocated the biggest weight to The Lovesac Company (NASDAQ:LOVE), around 1.62% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 0.85 percent of its 13F equity portfolio to LOVE.
Consequently, specific money managers have been driving this bullishness. Park West Asset Management, managed by Peter S. Park, initiated the largest position in The Lovesac Company (NASDAQ:LOVE). Park West Asset Management had $9.3 million invested in the company at the end of the quarter. Warren Lammert’s Granite Point Capital also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors and Cristan Blackman’s Empirical Capital Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Lovesac Company (NASDAQ:LOVE) but similarly valued. We will take a look at Enlivex Therapeutics Ltd. (NASDAQ:ENLV), General Finance Corporation (NASDAQ:GFN), Entravision Communications Corporation (NYSE:EVC), and MOGU Inc. (NYSE:MOGU). This group of stocks’ market values resemble LOVE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENLV | 1 | 635 | 0 |
| GFN | 5 | 9584 | 0 |
| EVC | 11 | 30046 | -4 |
| MOGU | 2 | 26364 | -1 |
| Average | 4.75 | 16657 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $36 million in LOVE’s case. Entravision Communications Corporation (NYSE:EVC) is the most popular stock in this table. On the other hand Enlivex Therapeutics Ltd. (NASDAQ:ENLV) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks The Lovesac Company (NASDAQ:LOVE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LOVE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LOVE were disappointed as the stock returned -18.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
