The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Boston Omaha Corporation (NASDAQ:BOMN) from the perspective of those elite funds.
Boston Omaha Corporation (NASDAQ:BOMN) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare BOMN to other stocks including First Community Bankshares Inc (NASDAQ:FCBC), Capitol Investment Corp. IV (NYSE:CIC), and Unisys Corporation (NYSE:UIS) to get a better sense of its popularity. Our calculations also showed that BOMN isn't among the 30 most popular stocks among hedge funds (see the video below). 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the new hedge fund action encompassing Boston Omaha Corporation (NASDAQ:BOMN).
What does smart money think about Boston Omaha Corporation (NASDAQ:BOMN)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BOMN over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Boston Omaha Corporation (NASDAQ:BOMN) was held by Magnolia Capital Fund, which reported holding $234.4 million worth of stock at the end of March. It was followed by Akre Capital Management with a $5.6 million position. Other investors bullish on the company included Moore Global Investments, Horizon Asset Management, and Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let's check out hedge fund activity in other stocks similar to Boston Omaha Corporation (NASDAQ:BOMN). These stocks are First Community Bankshares Inc (NASDAQ:FCBC), Capitol Investment Corp. IV (NYSE:CIC), Unisys Corporation (NYSE:UIS), and Hemisphere Media Group Inc (NASDAQ:HMTV). This group of stocks' market values are closest to BOMN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCBC,3,9257,-1 CIC,18,178758,3 UIS,16,46092,-3 HMTV,8,40637,0 Average,11.25,68686,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $242 million in BOMN's case. Capitol Investment Corp. IV (NYSE:CIC) is the most popular stock in this table. On the other hand First Community Bankshares Inc (NASDAQ:FCBC) is the least popular one with only 3 bullish hedge fund positions. Boston Omaha Corporation (NASDAQ:BOMN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BOMN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BOMN investors were disappointed as the stock returned -14.3% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.