The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Barrett Business Services, Inc. (NASDAQ:BBSI), and what that likely means for the prospects of the company and its stock.
Barrett Business Services, Inc. (NASDAQ:BBSI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Houghton Mifflin Harcourt Co (NASDAQ:HMHC), Global Partners LP (NYSE:GLP), and Yirendai Ltd. (NYSE:YRD) to gather more data points. Our calculations also showed that BBSI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to go over the new hedge fund action surrounding Barrett Business Services, Inc. (NASDAQ:BBSI).
Hedge fund activity in Barrett Business Services, Inc. (NASDAQ:BBSI)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in BBSI a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Barrett Business Services, Inc. (NASDAQ:BBSI) was held by Renaissance Technologies, which reported holding $35.8 million worth of stock at the end of September. It was followed by Cloverdale Capital Management with a $13 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Cloverdale Capital Management allocated the biggest weight to Barrett Business Services, Inc. (NASDAQ:BBSI), around 8.79% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to BBSI.
Seeing as Barrett Business Services, Inc. (NASDAQ:BBSI) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of money managers that elected to cut their entire stakes by the end of the third quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace sold off the largest stake of all the hedgies followed by Insider Monkey, comprising close to $2 million in stock. David Harding's fund, Winton Capital Management, also cut its stock, about $0.8 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Barrett Business Services, Inc. (NASDAQ:BBSI) but similarly valued. These stocks are Houghton Mifflin Harcourt Co (NASDAQ:HMHC), Global Partners LP (NYSE:GLP), Yirendai Ltd. (NYSE:YRD), and Aegion Corp - Class A (NASDAQ:AEGN). This group of stocks' market caps are similar to BBSI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMHC,13,191389,-1 GLP,2,461,-1 YRD,5,1568,2 AEGN,9,25278,4 Average,7.25,54674,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $76 million in BBSI's case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 2 bullish hedge fund positions. Barrett Business Services, Inc. (NASDAQ:BBSI) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BBSI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BBSI were disappointed as the stock returned -0.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.