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Bed Bath & Beyond Inc. (BBBY): Hedge Funds Giving Up?

Asma UL Husna

In this article you are going to find out whether hedge funds think Bed Bath & Beyond Inc. (NASDAQ:BBBY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) investors should pay attention to a decrease in support from the world's most elite money managers of late. BBBY was in 28 hedge funds' portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with BBBY holdings at the end of the previous quarter. Our calculations also showed that BBBY 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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_30602" align="aligncenter" width="399"] Philippe Laffont of Coatue Management[/caption]

COATUE MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to check out the fresh hedge fund action surrounding Bed Bath & Beyond Inc. (NASDAQ:BBBY).

What have hedge funds been doing with Bed Bath & Beyond Inc. (NASDAQ:BBBY)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in BBBY a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

More specifically, Contrarius Investment Management was the largest shareholder of Bed Bath & Beyond Inc. (NASDAQ:BBBY), with a stake worth $51.9 million reported as of the end of September. Trailing Contrarius Investment Management was Legion Partners Asset Management, which amassed a stake valued at $24.1 million. Arrowstreet Capital, Citadel Investment Group, and Southpoint Capital Advisors 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 10.16% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 6.64 percent of its 13F equity portfolio to BBBY.

Since Bed Bath & Beyond Inc. (NASDAQ:BBBY) has experienced bearish sentiment from the smart money, we can see that there is a sect of hedge funds that elected to cut their positions entirely heading into Q4. It's worth mentioning that William Harnisch's Peconic Partners LLC cut the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $12.1 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund said goodbye to about $11.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 6 funds heading into Q4.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Bed Bath & Beyond Inc. (NASDAQ:BBBY) but similarly valued. We will take a look at RadNet Inc. (NASDAQ:RDNT), FinVolution Group (NYSE:FINV), H&E Equipment Services, Inc. (NASDAQ:HEES), and HomeStreet Inc (NASDAQ:HMST). This group of stocks' market caps are closest to BBBY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDNT,16,33104,2 FINV,4,4687,-2 HEES,16,39998,1 HMST,13,38232,-2 Average,12.25,29005,-0.25 [/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 $29 million. That figure was $137 million in BBBY's case. RadNet Inc. (NASDAQ:RDNT) is the most popular stock in this table. On the other hand FinVolution Group (NYSE:FINV) is the least popular one with only 4 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 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on BBBY as the stock returned 72.7% so far in Q2 (through the end of May) 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.

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

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