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Is BBX Capital Corporation (BBX) Going to Burn These Hedge Funds?

Debasis Saha

Is BBX Capital Corporation (NYSE:BBX) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is BBX Capital Corporation (NYSE:BBX) a buy here? Money managers are selling. The number of long hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that BBX 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.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? 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]

RENAISSANCE TECHNOLOGIES

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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the fresh hedge fund action surrounding BBX Capital Corporation (NYSE:BBX).

What does smart money think about BBX Capital Corporation (NYSE:BBX)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in BBX a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is BBX A Good Stock To Buy?

More specifically, Angelo Gordon & Co was the largest shareholder of BBX Capital Corporation (NYSE:BBX), with a stake worth $7.3 million reported as of the end of September. Trailing Angelo Gordon & Co was Renaissance Technologies, which amassed a stake valued at $5.7 million. Alta Fundamental Advisers, Fondren Management, and Arrowstreet Capital 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 Fondren Management allocated the biggest weight to BBX Capital Corporation (NYSE:BBX), around 3.12% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, earmarking 2.96 percent of its 13F equity portfolio to BBX.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Mountain Lake Investment Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified BBX as a viable investment and initiated a position in the stock.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as BBX Capital Corporation (NYSE:BBX) but similarly valued. We will take a look at Avianca Holdings SA (NYSE:AVH), DryShips Inc. (NASDAQ:DRYS), Cowen Inc. (NASDAQ:COWN), and Hawkins, Inc. (NASDAQ:HWKN). This group of stocks' market values are similar to BBX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVH,3,6791,-1 DRYS,7,19825,5 COWN,19,87839,0 HWKN,8,11461,1 Average,9.25,31479,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $29 million in BBX's case. Cowen Inc. (NASDAQ:COWN) is the most popular stock in this table. On the other hand Avianca Holdings SA (NYSE:AVH) is the least popular one with only 3 bullish hedge fund positions. BBX Capital Corporation (NYSE:BBX) 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 BBX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BBX were disappointed as the stock returned -1.7% 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.

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