We can judge whether J.C. Penney Company, Inc. (NYSE:JCP) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
J.C. Penney Company, Inc. (NYSE:JCP) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that JCP isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the new hedge fund action regarding J.C. Penney Company, Inc. (NYSE:JCP).
How have hedgies been trading J.C. Penney Company, Inc. (NYSE:JCP)?
At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the fourth quarter of 2018. By comparison, 24 hedge funds held shares or bullish call options in JCP a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Masters Capital Management was the largest shareholder of J.C. Penney Company, Inc. (NYSE:JCP), with a stake worth $10.4 million reported as of the end of March. Trailing Masters Capital Management was Winton Capital Management, which amassed a stake valued at $10 million. D E Shaw, Tyvor Capital, and Redwood Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because J.C. Penney Company, Inc. (NYSE:JCP) has faced falling interest from the smart money, logic holds that there is a sect of funds that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that Daniel S. Och’s OZ Management cut the largest position of the “upper crust” of funds watched by Insider Monkey, worth close to $1.4 million in stock. Mike Vranos’s fund, Ellington, also said goodbye to its stock, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as J.C. Penney Company, Inc. (NYSE:JCP) but similarly valued. These stocks are Ready Capital Corporation (NYSE:RC), Petmed Express Inc (NASDAQ:PETS), Corenergy Infrastructure Trust Inc (NYSE:CORR), and PennantPark Investment Corp. (NASDAQ:PNNT). This group of stocks’ market valuations resemble JCP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RC | 14 | 63305 | 8 |
| PETS | 16 | 74107 | 1 |
| CORR | 11 | 43465 | 4 |
| PNNT | 9 | 13823 | 0 |
| Average | 12.5 | 48675 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $45 million in JCP’s case. Petmed Express Inc (NASDAQ:PETS) is the most popular stock in this table. On the other hand PennantPark Investment Corp. (NASDAQ:PNNT) is the least popular one with only 9 bullish hedge fund positions. J.C. Penney Company, Inc. (NYSE:JCP) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately JCP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on JCP were disappointed as the stock returned -18.8% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
