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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Children's Place Inc. (NASDAQ:PLCE) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is The Children's Place Inc. (NASDAQ:PLCE) ready to rally soon? The best stock pickers were getting more optimistic. The number of long hedge fund positions increased by 5 lately. The Children's Place Inc. (NASDAQ:PLCE) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that PLCE 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.
Today there are dozens of formulas shareholders employ to assess publicly traded companies. A duo of the most underrated formulas are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outclass the broader indices by a very impressive amount (see the details here).
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to view the recent hedge fund action encompassing The Children's Place Inc. (NASDAQ:PLCE).
How have hedgies been trading The Children's Place Inc. (NASDAQ:PLCE)?
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the first quarter of 2020. By comparison, 19 hedge funds held shares or bullish call options in PLCE a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in The Children's Place Inc. (NASDAQ:PLCE) was held by Greenvale Capital, which reported holding $46.9 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $18.4 million position. Other investors bullish on the company included Royce & Associates, Balyasny Asset Management, and Simcoe Capital Management. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to The Children's Place Inc. (NASDAQ:PLCE), around 7.22% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, earmarking 2.69 percent of its 13F equity portfolio to PLCE.
Consequently, key money managers were breaking ground themselves. Simcoe Capital Management, managed by Jeffrey Jacobowitz, initiated the most valuable position in The Children's Place Inc. (NASDAQ:PLCE). Simcoe Capital Management had $10.7 million invested in the company at the end of the quarter. Daniel S. Och's OZ Management also initiated a $4.2 million position during the quarter. The other funds with brand new PLCE positions are John A. Levin's Levin Capital Strategies, Richard Walters II's Stony Point Capital, and John Overdeck and David Siegel's Two Sigma Advisors.
Let's go over hedge fund activity in other stocks similar to The Children's Place Inc. (NASDAQ:PLCE). These stocks are Globalstar, Inc. (NYSE:GSAT), Scholar Rock Holding Corporation (NASDAQ:SRRK), QuinStreet Inc (NASDAQ:QNST), Banc of California, Inc. (NYSE:BANC), Athersys, Inc. (NASDAQ:ATHX), Brookdale Senior Living, Inc. (NYSE:BKD), and Innate Pharma S.A. (NASDAQ:IPHA). All of these stocks' market caps resemble PLCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSAT,9,56377,-3 SRRK,5,58243,0 QNST,20,110137,-2 BANC,13,41683,3 ATHX,10,8471,2 BKD,24,199213,7 IPHA,3,10337,-1 Average,12,69209,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $139 million in PLCE's case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand Innate Pharma S.A. (NASDAQ:IPHA) is the least popular one with only 3 bullish hedge fund positions. The Children's Place Inc. (NASDAQ:PLCE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PLCE is 81.4. 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. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately PLCE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PLCE were disappointed as the stock returned -24.2% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.