Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Bed Bath & Beyond Inc. (NASDAQ:BBBY) changed recently.
Is Bed Bath & Beyond Inc. (NASDAQ:BBBY) worth your attention right now? Hedge funds are betting on the stock. The number of bullish hedge fund positions inched up by 3 recently. Our calculations also showed that BBBY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). BBBY was in 23 hedge funds' portfolios at the end of September. There were 20 hedge funds in our database with BBBY holdings at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_732403" align="aligncenter" width="473"] Christopher Kiper of Legion Partners Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's review the latest hedge fund action encompassing Bed Bath & Beyond Inc. (NASDAQ:BBBY).
What have hedge funds been doing with Bed Bath & Beyond Inc. (NASDAQ:BBBY)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in BBBY a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Legion Partners Asset Management held the most valuable stake in Bed Bath & Beyond Inc. (NASDAQ:BBBY), which was worth $54.8 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $26.1 million worth of shares. AQR Capital Management, Southpoint Capital Advisors, and Renaissance Technologies 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 Legion Partners Asset Management allocated the biggest weight to Bed Bath & Beyond Inc. (NASDAQ:BBBY), around 13.46% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, earmarking 13.39 percent of its 13F equity portfolio to BBBY.
Consequently, key money managers have been driving this bullishness. Southpoint Capital Advisors, managed by John Smith Clark, established the most outsized position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Southpoint Capital Advisors had $10.6 million invested in the company at the end of the quarter. Michael Burry's Scion Asset Management also made a $8 million investment in the stock during the quarter. The following funds were also among the new BBBY investors: Sculptor Capital, Elise Di Vincenzo Crumbine's Stormborn Capital Management, and Lee Ainslie's Maverick Capital.
Let's now review hedge fund activity in other stocks similar to Bed Bath & Beyond Inc. (NASDAQ:BBBY). We will take a look at Actuant Corporation (NYSE:ATU), Sonic Automotive Inc (NYSE:SAH), Qiwi PLC (NASDAQ:QIWI), and Eidos Therapeutics, Inc. (NASDAQ:EIDX). This group of stocks' market values resemble BBBY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATU,10,257177,-2 SAH,12,39925,1 QIWI,13,105061,0 EIDX,14,185784,3 Average,12.25,146987,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $162 million in BBBY's case. Eidos Therapeutics, Inc. (NASDAQ:EIDX) is the most popular stock in this table. On the other hand Actuant Corporation (NYSE:ATU) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BBBY as the stock returned 60.8% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. 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.