Should You Avoid BBX Capital Corporation (BBX)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards BBX Capital Corporation (NYSE:BBX) at the end of the first quarter and determine whether the smart money was really smart about this stock.

BBX Capital Corporation (NYSE:BBX) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that BBX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the key hedge fund action regarding BBX Capital Corporation (NYSE:BBX).

Hedge fund activity in BBX Capital Corporation (NYSE:BBX)

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BBX over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of BBX Capital Corporation (NYSE:BBX), with a stake worth $3.4 million reported as of the end of September. Trailing Renaissance Technologies was Angelo Gordon & Co, which amassed a stake valued at $3.4 million. Arrowstreet Capital, GLG Partners, and Citadel Investment Group 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 Angelo Gordon & Co allocated the biggest weight to BBX Capital Corporation (NYSE:BBX), around 0.25% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to BBX.

Judging by the fact that BBX Capital Corporation (NYSE:BBX) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Bradley Louis Radoff’s Fondren Management dumped the biggest position of all the hedgies followed by Insider Monkey, totaling close to $1.4 million in stock. Jeremy Carton and Gilbert Li’s fund, Alta Fundamental Advisers, also dropped its stock, about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to BBX Capital Corporation (NYSE:BBX). We will take a look at NextDecade Corporation (NASDAQ:NEXT), Delek Logistics Partners LP (NYSE:DKL), Franchise Group, Inc. (NASDAQ:FRG), and SeaSpine Holdings Corp (NASDAQ:SPNE). This group of stocks’ market caps are similar to BBX’s market cap.

View table here if you experience formatting issues.

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 $58 million. That figure was $10 million in BBX’s case. SeaSpine Holdings Corp (NASDAQ:SPNE) is the most popular stock in this table. On the other hand Delek Logistics Partners LP (NYSE:DKL) is the least popular one with only 1 bullish hedge fund positions. BBX Capital Corporation (NYSE:BBX) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately BBX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BBX were disappointed as the stock returned 10% during the same time 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 10 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.