There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Sears Holdings Corporation (NASDAQ:SHLD).
Sears Holdings Corporation (NASDAQ:SHLD) registered a slight decrease in hedge fund interest between July and September. Among the funds we track, 15 funds held shares of Sears at the end of the last quarter. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as EnPro Industries, Inc. (NYSE:NPO), Innoviva Inc(NASDAQ:INVA), and Kearny Financial Corp. (NASDAQ:KRNY) to gather more data points.
Follow Sears Holdings Corp (NASDAQ:SHLD)
Follow Sears Holdings Corp (NASDAQ:SHLD)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Nonwarit/Shutterstock.com
With all of this in mind, let’s take a gander at the key action encompassing Sears Holdings Corporation (NASDAQ:SHLD).
What have hedge funds been doing with Sears Holdings Corporation (NASDAQ:SHLD)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, down by one from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in SHLD heading into 2016. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Fairholme (FAIRX), led by Bruce Berkowitz, holds the biggest position in Sears Holdings Corporation (NASDAQ:SHLD). Fairholme (FAIRX) has a $319 million position in the stock, comprising 25.6% of its 13F portfolio. The second largest stake is held by Edward Lampert’s ESL Investments, which disclosed a $256 million position; 29% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of Michael Blitzer’s Kingstown Capital Management, Debra Fine’s Fine Capital Partners, and Robert Jaffe’s Force Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Judging by the fact that Sears Holdings Corporation (NASDAQ:SHLD) has faced bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their entire stakes by the end of the third quarter. Intriguingly, Eric Chen’s Antipodean Advisors said goodbye to the biggest position of all the investors studied by Insider Monkey, comprising an estimated $3.7 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $1.6 million worth of shares.
Let’s check out hedge fund activity in other stocks similar to Sears Holdings Corporation (NASDAQ:SHLD). We will take a look at EnPro Industries, Inc. (NYSE:NPO), Innoviva Inc (NASDAQ:INVA), Kearny Financial Corp. (NASDAQ:KRNY), and Ameris Bancorp (NASDAQ:ABCB). This group of stocks’ market caps match SHLD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NPO | 12 | 216152 | -3 |
| INVA | 21 | 394753 | 1 |
| KRNY | 18 | 131292 | -1 |
| ABCB | 13 | 76924 | 1 |
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $205 million, which is lower than the $769 million in SHLD’s case. Innoviva Inc (NASDAQ:INVA) is the most popular stock in this table with 21 funds holding shares. On the other hand EnPro Industries, Inc. (NYSE:NPO) is the least popular one with only 12 bullish hedge fund positions. Sears Holdings Corporation (NASDAQ:SHLD) 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. In this regard Innoviva Inc (NASDAQ:INVA) might be a better candidate to consider taking a long position in.
Disclosure: none
