Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Bazaarvoice Inc (NASDAQ:BV) a sound investment now? Hedge funds are becoming more confident. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that BV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Israel Englander of Millennium Management
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. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the fresh hedge fund action encompassing Bazaarvoice Inc (NASDAQ:BV).
Hedge fund activity in Bazaarvoice Inc (NASDAQ:BV)
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BV over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Bazaarvoice Inc (NASDAQ:BV) was held by MSDC Management, which reported holding $233.8 million worth of stock at the end of September. It was followed by Broad Bay Capital with a $24.1 million position. Other investors bullish on the company included Cardinal Capital, BlueMar Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position MSDC Management allocated the biggest weight to Bazaarvoice Inc (NASDAQ:BV), around 31.36% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, dishing out 6.44 percent of its 13F equity portfolio to BV.
Consequently, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Bazaarvoice Inc (NASDAQ:BV). Arrowstreet Capital had $1.6 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now take a look at hedge fund activity in other stocks similar to Bazaarvoice Inc (NASDAQ:BV). We will take a look at Healthcare Services Group, Inc. (NASDAQ:HCSG), Freshpet Inc (NASDAQ:FRPT), Forward Air Corporation (NASDAQ:FWRD), and Goosehead Insurance, Inc. (NASDAQ:GSHD). All of these stocks’ market caps match BV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HCSG | 16 | 85990 | -4 |
| FRPT | 18 | 126120 | -6 |
| FWRD | 20 | 133372 | 2 |
| GSHD | 8 | 35500 | 1 |
| Average | 15.5 | 95246 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $285 million in BV’s case. Forward Air Corporation (NASDAQ:FWRD) is the most popular stock in this table. On the other hand Goosehead Insurance, Inc. (NASDAQ:GSHD) is the least popular one with only 8 bullish hedge fund positions. Bazaarvoice Inc (NASDAQ:BV) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 BV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BV investors were disappointed as the stock returned -6.5% 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.
