Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Boise Cascade Co (NYSE:BCC) was in 15 hedge funds' portfolios at the end of the fourth quarter of 2018. BCC investors should pay attention to a decrease in hedge fund interest lately. There were 22 hedge funds in our database with BCC positions at the end of the previous quarter. Our calculations also showed that BCC isn't among the 30 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to analyze the recent hedge fund action encompassing Boise Cascade Co (NYSE:BCC).
What does the smart money think about Boise Cascade Co (NYSE:BCC)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in BCC a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Boise Cascade Co (NYSE:BCC) was held by Millennium Management, which reported holding $10.9 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $9.1 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and Point72 Asset Management.
Since Boise Cascade Co (NYSE:BCC) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that elected to cut their full holdings in the third quarter. Interestingly, Louis Navellier's Navellier & Associates sold off the biggest investment of the 700 funds tracked by Insider Monkey, totaling about $3.8 million in stock. Mike Vranos's fund, Ellington, also dumped its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Boise Cascade Co (NYSE:BCC). These stocks are Hess Midstream Partners LP (NYSE:HESM), Benchmark Electronics, Inc. (NYSE:BHE), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), and InfraREIT, Inc. (REIT) (NYSE:HIFR). This group of stocks' market values are similar to BCC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HESM,6,5372,0 BHE,12,105172,-1 RYTM,10,189107,-5 HIFR,15,197476,1 Average,10.75,124282,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $42 million in BCC's case. InfraREIT, Inc. (REIT) (NYSE:HIFR) is the most popular stock in this table. On the other hand Hess Midstream Partners LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. Boise Cascade Co (NYSE:BCC) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BCC wasn't nearly as popular as these 15 stock and hedge funds that were betting on BCC were disappointed as the stock returned 10.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.