Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article, we will use that wealth of knowledge gathered from tracking hedge funds for several years to determine whether Big Lots, Inc. (NYSE:BIG) makes for a good investment right now.
Is Big Lots, Inc. (NYSE:BIG) a buy right now? The best stock pickers are getting more optimistic. The number of long hedge fund bets improved by 2 in recent months. Our calculations also showed that BIG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BIG was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with BIG holdings at the end of the previous quarter.
To the average investor there are a large number of indicators market participants can use to analyze stocks. Two of the most innovative indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best money managers can beat their index-focused peers by a solid margin (see the details here).
Louis Bacon Moore of Moore Capital
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the recent hedge fund action surrounding Big Lots, Inc. (NYSE:BIG).
Hedge fund activity in Big Lots, Inc. (NYSE:BIG)
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in BIG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Big Lots, Inc. (NYSE:BIG), with a stake worth $34.9 million reported as of the end of September. Trailing Arrowstreet Capital was Candlestick Capital Management, which amassed a stake valued at $24.5 million. Scopus Asset Management, Moore Global Investments, 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 Candlestick Capital Management allocated the biggest weight to Big Lots, Inc. (NYSE:BIG), around 1.29% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, setting aside 0.67 percent of its 13F equity portfolio to BIG.
As one would reasonably expect, specific money managers were breaking ground themselves. Candlestick Capital Management, managed by Jack Woodruff, initiated the most outsized position in Big Lots, Inc. (NYSE:BIG). Candlestick Capital Management had $24.5 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $20.6 million position during the quarter. The other funds with brand new BIG positions are Louis Bacon’s Moore Global Investments, Frederick DiSanto’s Ancora Advisors, and Ira Unschuld’s Brant Point Investment Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Big Lots, Inc. (NYSE:BIG) but similarly valued. We will take a look at Natus Medical Incorporated (NASDAQ:NTUS), Aerie Pharmaceuticals Inc (NASDAQ:AERI), Fangdd Network Group Ltd. (NASDAQ:DUO), and Chase Corporation (NYSE:CCF). All of these stocks’ market caps match BIG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTUS | 24 | 97724 | 2 |
| AERI | 21 | 339924 | -9 |
| DUO | 1 | 549 | 1 |
| CCF | 9 | 96736 | 0 |
| Average | 13.75 | 133733 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $152 million in BIG’s case. Natus Medical Incorporated (NASDAQ:NTUS) is the most popular stock in this table. On the other hand Fangdd Network Group Ltd. (NASDAQ:DUO) is the least popular one with only 1 bullish hedge fund positions. Big Lots, Inc. (NYSE:BIG) 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately BIG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BIG were disappointed as the stock returned -14% 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
