Sears Hometown and Outlet Stores Inc (SHOS): Are Hedge Funds Right About This Stock?

Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) shareholders have witnessed an increase in hedge fund sentiment of late.

To most investors, hedge funds are viewed as unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading today, we at Insider Monkey choose to focus on the moguls of this club, about 450 funds. It is estimated that this group oversees the lion’s share of the hedge fund industry’s total capital, and by keeping an eye on their best equity investments, we have figured out a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as key, bullish insider trading sentiment is another way to parse down the financial markets. Just as you’d expect, there are lots of reasons for a bullish insider to get rid of shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several empirical studies have demonstrated the impressive potential of this tactic if investors understand what to do (learn more here).

Consequently, let’s take a look at the latest action regarding Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS).

Hedge fund activity in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS)

At the end of the first quarter, a total of 14 of the hedge funds we track were bullish in this stock, a change of 27% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully.

When looking at the hedgies we track, ESL Investments, managed by Edward Lampert, holds the largest position in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS). ESL Investments has a $366.6 million position in the stock, comprising 9.1% of its 13F portfolio. On ESL Investments’s heels is Robert Jaffe of Force Capital, with a $33.6 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Some other hedgies that hold long positions include Debra Fine’s Fine Capital Partners, Steven Cohen’s SAC Capital Advisors and Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Long Pond Capital, managed by John Khoury, created the largest position in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS). Long Pond Capital had 8.1 million invested in the company at the end of the quarter. Whitney Tilson’s T2 Partners also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Matthew Hulsizer’s PEAK6 Capital Management, and Neil Chriss’s Hutchin Hill Capital.

How have insiders been trading Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS)?

Bullish insider trading is particularly usable when the company in focus has experienced transactions within the past six months. Over the last half-year time period, Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) has experienced 1 unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS). These stocks are Alon Holdings Blue Square Israel Ltd (NYSE:BSI), Dillard’s, Inc. (NYSE:DDS), J.C. Penney Company, Inc. (NYSE:JCP), The Bon-Ton Stores, Inc. (NASDAQ:BONT), and Saks Inc (NYSE:SKS). This group of stocks are the members of the department stores industry and their market caps are closest to SHOS’s market cap.