How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Box, Inc. (NYSE:BOX) and determine whether hedge funds had an edge regarding this stock.
Box, Inc. (NYSE:BOX) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistics is 35. BOX has seen a decrease in hedge fund sentiment in recent months. There were 34 hedge funds in our database with BOX positions at the end of the first quarter. Our calculations also showed that BOX isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
David Harding of Winton Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a glance at the key hedge fund action encompassing Box, Inc. (NYSE:BOX).
What does smart money think about Box, Inc. (NYSE:BOX)?
At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in BOX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Starboard Value LP held the most valuable stake in Box, Inc. (NYSE:BOX), which was worth $187.8 million at the end of the third quarter. On the second spot was RGM Capital which amassed $104.6 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Two Sigma 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 Potrero Capital Research allocated the biggest weight to Box, Inc. (NYSE:BOX), around 7.19% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, dishing out 6.69 percent of its 13F equity portfolio to BOX.
Because Box, Inc. (NYSE:BOX) has faced declining sentiment from hedge fund managers, it's safe to say that there were a few funds that elected to cut their full holdings last quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group said goodbye to the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $14.3 million in stock. Thomas Ellis and Todd Hammer's fund, North Run Capital, also sold off its stock, about $5.7 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Box, Inc. (NYSE:BOX) but similarly valued. These stocks are Pinnacle Financial Partners (NASDAQ:PNFP), nVent Electric plc (NYSE:NVT), Coherent, Inc. (NASDAQ:COHR), Valley National Bancorp (NYSE:VLY), Alarm.com Holdings Inc (NASDAQ:ALRM), Selective Insurance Group (NASDAQ:SIGI), and VEON Ltd. (NASDAQ:VEON). This group of stocks' market values match BOX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNFP,14,32187,1 NVT,27,428424,-2 COHR,32,208020,9 VLY,17,25863,-5 ALRM,24,225769,1 SIGI,13,48566,-2 VEON,6,21115,-2 Average,19,141421,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $656 million in BOX's case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Box, Inc. (NYSE:BOX) is more popular among hedge funds. Our overall hedge fund sentiment score for BOX is 82.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately BOX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BOX were disappointed as the stock returned -5.4% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.