Steelcase Inc. (SCS): Are Hedge Funds Right About This Stock?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Steelcase Inc. (NYSE:SCS) was in 18 hedge funds’ portfolios at the end of September. SCS investors should pay attention to a decrease in support from the world’s most successful money managers in recent months. There were 20 hedge funds in our database with SCS positions at the end of the previous quarter. At the end of this article we will also compare SCS to other stocks including Gannett Co., Inc. (NYSE:GCI), Shutterfly, Inc. (NASDAQ:SFLY), and OM Asset Management PLC (NYSE:OMAM) to get a better sense of its popularity.

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.

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Keeping this in mind, we’re going to take a look at the recent action encompassing Steelcase Inc. (NYSE:SCS).

Hedge fund activity in Steelcase Inc. (NYSE:SCS)

Heading into the fourth quarter of 2016, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, down 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCS over the last 5 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the number one position in Steelcase Inc. (NYSE:SCS), worth close to $21.6 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Spitfire Capital, led by Julian Allen, which holds an $8.6 million position; 3.8% of its 13F portfolio is allocated to the stock. Other peers with similar optimism consist of John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. 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.

Seeing as Steelcase Inc. (NYSE:SCS) has gone through a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of funds that slashed their entire stakes last quarter. Interestingly, Joel Greenblatt’s Gotham Asset Management cashed in the largest position of all the hedgies followed by Insider Monkey, worth close to $7.9 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund cut about $3.1 million worth of SCS shares.

Let’s now take a look at hedge fund activity in other stocks similar to Steelcase Inc. (NYSE:SCS). These stocks are Gannett Co., Inc. (NYSE:GCI), Shutterfly, Inc. (NASDAQ:SFLY), OM Asset Management PLC (NYSE:OMAM), and Sothebys (NYSE:BID). This group of stocks’ market valuations match SCS’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $69 million in SCS’s case. Shutterfly, Inc. (NASDAQ:SFLY) is the most popular stock in this table. On the other hand OM Asset Management PLC (NYSE:OMAM) is the least popular one with only 12 bullish hedge fund positions. Steelcase Inc. (NYSE:SCS) 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 SFLY might be a better candidate to consider taking a long position in.

Disclosure: none.