Sears Hometown and Outlet Stores Inc (SHOS): What Fellow Hedgies Think of Lampert’s Sears Spinoff

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data shows elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending October 31 and 63% of these 30 stocks outperformed the market. The S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) from the perspective of those top investors.

Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged, with the stock being in 16 hedge funds’ portfolios at the end of September. 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 Geospace Technologies Corp (NASDAQ:GEOS), Evolution Petroleum Corporation (NYSEMKT:EPM), and MFC Industrial Ltd (NYSE:MIL) to gather more data points.

At the moment there are dozens of signals stock traders put to use to analyze stocks. A duo of the less utilized signals are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outclass the S&P 500 by a solid margin (see the details here).

Now, we’re going to check out the new action regarding Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS).

What have hedge funds been doing with Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS)?

Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or had already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Edward Lampert’s ESL Investments has the most valuable position in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS), worth close to $38.2 million, accounting for 2.4% of its total 13F portfolio. Coming in second is Chou Associates Management, managed by Francis Chou, which holds a $10.6 million position; 3.6% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Murray Stahl’s Horizon Asset Management, John Petry’s Sessa Capital, and Bruce Berkowitz’s Fairholme (FAIRX).

Due to the fact that Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) has witnessed a declination in interest from the aggregate hedge fund industry, we can see that there is a sect of funds that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Glenn Russell Dubin’s Highbridge Capital Management said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $0.4 million in stock, and Mike Vranos’ Ellington was right behind this move, as the fund sold off about $0.3 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) but similarly valued. We will take a look at Geospace Technologies Corp (NASDAQ:GEOS), Evolution Petroleum Corporation (NYSEMKT:EPM), MFC Industrial Ltd (NYSE:MIL), and Repros Therapeutics Inc (NASDAQ:RPRX). This group of stocks’ market valuations resemble SHOS’s market valuation.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $78 million in SHOS’s case. Repros Therapeutics Inc (NASDAQ:RPRX) is the most popular stock in this table. On the other hand MFC Industrial Ltd (NYSE:MIL) is the least popular one with only 4 bullish hedge fund positions. Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) is not the most popular stock in this group but hedge fund interest is still above average and there is more money invested in it than in any of the other stocks, although about half of that is from Lampert’s aforementioned position, which has been drastically cut since the company’s spinoff from Sears Holdings in 2012. Nonetheless, this is a slightly positive signal, and both SHOS and RPRX might be good candidates to consider long positions in.