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Should You Avoid Big Lots, Inc. (BIG)?

Asma UL Husna

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Big Lots, Inc. (NYSE:BIG).

Big Lots, Inc. (NYSE:BIG) has seen a decrease in hedge fund interest lately. BIG was in 15 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with BIG holdings at the end of the previous quarter. Our calculations also showed that BIG 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_738761" align="aligncenter" width="392"] Fred DiSanto of Ancora Advisors[/caption]

Fred DiSanto Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let's take a glance at the latest hedge fund action encompassing Big Lots, Inc. (NYSE:BIG).

Hedge fund activity in Big Lots, Inc. (NYSE:BIG)

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in BIG a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Big Lots, Inc. (NYSE:BIG) was held by Ancora Advisors, which reported holding $35 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $9.7 million position. Other investors bullish on the company included Schonfeld Strategic Advisors, Arrowstreet Capital, and Maverick Capital. In terms of the portfolio weights assigned to each position Ancora Advisors allocated the biggest weight to Big Lots, Inc. (NYSE:BIG), around 1.62% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, dishing out 0.49 percent of its 13F equity portfolio to BIG.

Since Big Lots, Inc. (NYSE:BIG) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of hedgies that decided to sell off their full holdings in the first quarter. Intriguingly, Jack Woodruff's Candlestick Capital Management dumped the largest stake of the 750 funds tracked by Insider Monkey, valued at close to $24.5 million in stock, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund said goodbye to about $20.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 9 funds in the first quarter.

Let's now review 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 Portola Pharmaceuticals Inc (NASDAQ:PTLA), Compugen Ltd. (NASDAQ:CGEN), Groupon Inc (NASDAQ:GRPN), and IMAX Corporation (NYSE:IMAX). All of these stocks' market caps are similar to BIG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTLA,17,61104,-10 CGEN,8,44171,2 GRPN,18,74380,-8 IMAX,17,38681,3 Average,15,54584,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $75 million in BIG's case. Groupon Inc (NASDAQ:GRPN) is the most popular stock in this table. On the other hand Compugen Ltd. (NASDAQ:CGEN) is the least popular one with only 8 bullish hedge fund positions. Big Lots, Inc. (NYSE:BIG) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on BIG as the stock returned 140% during the second quarter and outperformed the market by an even larger margin.

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

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