Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves. In this article, we look at what those funds think of Box, Inc. (NYSE:BOX) based on that data.
Box, Inc. (NYSE:BOX) has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that BOX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's view the key hedge fund action surrounding Box, Inc. (NYSE:BOX).
How are hedge funds trading Box, Inc. (NYSE:BOX)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BOX over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Starboard Value LP, managed by Jeffrey Smith, holds the most valuable position in Box, Inc. (NYSE:BOX). Starboard Value LP has a $115.5 million position in the stock, comprising 3.9% of its 13F portfolio. On Starboard Value LP's heels is Bares Capital Management, managed by Brian Bares, which holds a $106.9 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism include Robert G. Moses's RGM Capital, Ryan Frick and Oliver Evans's Dorsal Capital Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to Box, Inc. (NYSE:BOX), around 7.52% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, earmarking 6.86 percent of its 13F equity portfolio to BOX.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Starboard Value LP, managed by Jeffrey Smith, created the most outsized position in Box, Inc. (NYSE:BOX). Starboard Value LP had $115.5 million invested in the company at the end of the quarter. Kenneth Squire's 13D Management also initiated a $10.3 million position during the quarter. The following funds were also among the new BOX investors: Matthew Mark's Jet Capital Investors, Brandon Haley's Holocene Advisors, and Marc Majzner's Clearline Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Box, Inc. (NYSE:BOX) but similarly valued. We will take a look at Allegiant Travel Company (NASDAQ:ALGT), Werner Enterprises, Inc. (NASDAQ:WERN), The Chemours Company (NYSE:CC), and Saia Inc (NASDAQ:SAIA). This group of stocks' market caps are similar to BOX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGT,16,530035,-2 WERN,18,112767,3 CC,29,273189,1 SAIA,13,66696,4 Average,19,245672,1.5 [/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 $246 million. That figure was $554 million in BOX's case. The Chemours Company (NYSE:CC) is the most popular stock in this table. On the other hand Saia Inc (NASDAQ:SAIA) is the least popular one with only 13 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 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 3% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.