While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding BlueLinx Holdings Inc. (NYSE:BXC).
Is BlueLinx Holdings Inc. (NYSE:BXC) a bargain? The smart money is in a bullish mood. The number of long hedge fund bets inched up by 2 recently. Our calculations also showed that BXC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BXC was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with BXC holdings 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.
Phill Gross of Adage Capital Management
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. Let’s view the fresh hedge fund action surrounding BlueLinx Holdings Inc. (NYSE:BXC).
Hedge fund activity in BlueLinx Holdings Inc. (NYSE:BXC)
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in BXC a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Nokomis Capital held the most valuable stake in BlueLinx Holdings Inc. (NYSE:BXC), which was worth $41.4 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $28.3 million worth of shares. Coliseum Capital, Tontine Asset Management, and Solas 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 Nokomis Capital allocated the biggest weight to BlueLinx Holdings Inc. (NYSE:BXC), around 8.95% of its 13F portfolio. Coliseum Capital is also relatively very bullish on the stock, earmarking 7.9 percent of its 13F equity portfolio to BXC.
As aggregate interest increased, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in BlueLinx Holdings Inc. (NYSE:BXC). Citadel Investment Group had $1.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also initiated a $0.6 million position during the quarter. The only other fund with a brand new BXC position is Jordan Moelis and Jeff Farroni’s Deep Field Asset Management.
Let’s now review hedge fund activity in other stocks similar to BlueLinx Holdings Inc. (NYSE:BXC). These stocks are Covenant Transportation Group, Inc. (NASDAQ:CVTI), Investors Title Company (NASDAQ:ITIC), NN, Inc. (NASDAQ:NNBR), and Minerva Neurosciences, Inc (NASDAQ:NERV). This group of stocks’ market values are closest to BXC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVTI | 11 | 19949 | -3 |
| ITIC | 4 | 38476 | 1 |
| NNBR | 5 | 36968 | -1 |
| NERV | 10 | 28964 | 1 |
| Average | 7.5 | 31089 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $127 million in BXC’s case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand Investors Title Company (NASDAQ:ITIC) is the least popular one with only 4 bullish hedge fund positions. BlueLinx Holdings Inc. (NYSE:BXC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BXC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BXC were disappointed as the stock returned -68.2% during the fourth quarter (through the end of November) 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.
