There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Box, Inc. (NYSE:BOX).
Is Box, Inc. (NYSE:BOX) a splendid investment right now? The smart money is turning less bullish. The number of bullish hedge fund bets shrunk by 5 lately. Our calculations also showed that BOX isn't among the 30 most popular stocks among hedge funds (view 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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 take a look at the new hedge fund action encompassing Box, Inc. (NYSE:BOX).
How are hedge funds trading Box, Inc. (NYSE:BOX)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BOX over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Bares Capital Management was the largest shareholder of Box, Inc. (NYSE:BOX), with a stake worth $149.7 million reported as of the end of March. Trailing Bares Capital Management was RGM Capital, which amassed a stake valued at $47 million. Dorsal Capital Management, Renaissance Technologies, and Wallace R. Weitz & Co. were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Box, Inc. (NYSE:BOX) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. At the top of the heap, Amish Mehta's SQN Investors cut the largest position of the "upper crust" of funds followed by Insider Monkey, totaling about $68.7 million in stock. Christian Leone's fund, Luxor Capital Group, also said goodbye to its stock, about $26.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 5 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Box, Inc. (NYSE:BOX). We will take a look at Oi SA (NYSE:OIBR), Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Beacon Roofing Supply, Inc. (NASDAQ:BECN), and United States Steel Corporation (NYSE:X). This group of stocks' market values are similar to BOX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OIBR,18,866887,-3 IBA,3,39180,0 BECN,16,400438,-2 X,19,87590,-5 Average,14,348524,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $349 million. That figure was $395 million in BOX's case. United States Steel Corporation (NYSE:X) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Box, Inc. (NYSE:BOX) is more popular among hedge funds. 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 BOX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BOX were disappointed as the stock returned -6% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.