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Is BJ’s Wholesale Club Holdings, Inc. (BJ) A Good Stock To Buy ?

Abigail Fisher

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was BJ's Wholesale Club Holdings, Inc. (NYSE:BJ).

BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) was in 23 hedge funds' portfolios at the end of the third quarter of 2019. BJ has seen a decrease in enthusiasm from smart money of late. There were 33 hedge funds in our database with BJ holdings at the end of the previous quarter. Our calculations also showed that BJ 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

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_746825" align="aligncenter" width="473"] Matthew Halbower of Pentwater Capital[/caption]

Matthew Halbower Pentwater Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the fresh hedge fund action surrounding BJ's Wholesale Club Holdings, Inc. (NYSE:BJ).

What does smart money think about BJ's Wholesale Club Holdings, Inc. (NYSE:BJ)?

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BJ over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

BJ_dec2019

Among these funds, Sirios Capital Management held the most valuable stake in BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), which was worth $80.6 million at the end of the third quarter. On the second spot was Simcoe Capital Management which amassed $32.3 million worth of shares. Millennium Management, Locust Wood Capital Advisers, and Citadel Investment Group 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 Simcoe Capital Management allocated the biggest weight to BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), around 8.31% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, earmarking 5.31 percent of its 13F equity portfolio to BJ.

Judging by the fact that BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) has witnessed falling interest from hedge fund managers, we can see that there is a sect of hedgies that decided to sell off their entire stakes in the third quarter. Intriguingly, Shane Finemore's Manikay Partners cut the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $13.2 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund dumped about $11.1 million worth. These moves are interesting, as total hedge fund interest dropped by 10 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). We will take a look at Graham Holdings Co (NYSE:GHC), Clearway Energy, Inc. (NYSE:CWEN), Bank OZK (NASDAQ:OZK), and Glacier Bancorp, Inc. (NASDAQ:GBCI). This group of stocks' market values are closest to BJ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GHC,17,551698,2 CWEN,20,182276,1 OZK,19,282599,-2 GBCI,13,47527,-4 Average,17.25,266025,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $276 million in BJ's case. Clearway Energy, Inc. (NYSE:CWEN) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is more popular among hedge funds. 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 BJ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BJ were disappointed as the stock returned -8.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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