Was The Smart Money Right About Box, Inc. (BOX)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Box, Inc. (NYSE:BOX) in this article.

Is Box, Inc. (NYSE:BOX) going to take off soon? The best stock pickers were becoming less confident. The number of bullish hedge fund bets shrunk by 8 lately. Box, Inc. (NYSE:BOX) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistic is 43. Our calculations also showed that BOX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 43 hedge funds in our database with BOX positions at the end of the first quarter.

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 79 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.

Robert Moses of RGM Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the key hedge fund action regarding Box, Inc. (NYSE:BOX).

Do Hedge Funds Think BOX Is A Good Stock To Buy Now?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BOX over the last 24 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.

The largest stake in Box, Inc. (NYSE:BOX) was held by Starboard Value LP, which reported holding $332.5 million worth of stock at the end of June. It was followed by RGM Capital with a $123.6 million position. Other investors bullish on the company included Freshford Capital Management, Two Sigma Advisors, and Sunriver Management. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Box, Inc. (NYSE:BOX), around 7.41% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, dishing out 6.53 percent of its 13F equity portfolio to BOX.

Because Box, Inc. (NYSE:BOX) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds who sold off their positions entirely last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $34.2 million in stock, and Wallace Weitz’s Wallace R. Weitz & Co. was right behind this move, as the fund dumped about $28.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Box, Inc. (NYSE:BOX). We will take a look at EnerSys (NYSE:ENS), Axis Capital Holdings Limited (NYSE:AXS), JBG SMITH Properties (NYSE:JBGS), Tegna Inc (NYSE:TGNA), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Univar Solutions Inc (NYSE:UNVR), and Portland General Electric Company (NYSE:POR). This group of stocks’ market valuations resemble BOX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $412 million. That figure was $755 million in BOX’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Box, Inc. (NYSE:BOX) is more popular among hedge funds. Our overall hedge fund sentiment score for BOX is 71.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately BOX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BOX were disappointed as the stock returned 4.6% since the end of the second quarter (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.