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How Did Five Below Inc (FIVE) Compare Against Hedge Fund Darlings in 2019?

Debasis Saha

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Five Below Inc (NASDAQ:FIVE) and compare its performance against hedge funds' favorite stocks.

Five Below Inc (NASDAQ:FIVE) has experienced a decrease in enthusiasm from smart money in recent months. FIVE was in 34 hedge funds' portfolios at the end of the third quarter of 2019. There were 38 hedge funds in our database with FIVE positions at the end of the previous quarter. Our calculations also showed that FIVE 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).

Today there are numerous tools investors can use to appraise stocks. A couple of the most useful tools are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can outpace the broader indices by a very impressive amount (see the details here).

[caption id="attachment_25086" align="alignnone" width="600"] Dan Loeb of Third Point[/caption]

Dan Loeb THIRD POINT

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. Keeping this in mind let's view the fresh hedge fund action surrounding Five Below Inc (NASDAQ:FIVE).

What have hedge funds been doing with Five Below Inc (NASDAQ:FIVE)?

Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FIVE over the last 17 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is FIVE A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Dan Loeb's Third Point has the largest position in Five Below Inc (NASDAQ:FIVE), worth close to $107.2 million, accounting for 1.3% of its total 13F portfolio. Sitting at the No. 2 spot is Robert Pohly of Samlyn Capital, with a $75.5 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Paul Marshall and Ian Wace's Marshall Wace, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Five Below Inc (NASDAQ:FIVE), around 11.44% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, setting aside 5.4 percent of its 13F equity portfolio to FIVE.

Since Five Below Inc (NASDAQ:FIVE) has experienced declining sentiment from hedge fund managers, it's safe to say that there was a specific group of fund managers who were dropping their full holdings in the third quarter. At the top of the heap, Renaissance Technologies cut the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $64.8 million in stock, and James Parsons's Junto Capital Management was right behind this move, as the fund cut about $51.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Five Below Inc (NASDAQ:FIVE) but similarly valued. These stocks are Hexcel Corporation (NYSE:HXL), Alteryx, Inc. (NYSE:AYX), Catalent Inc (NYSE:CTLT), and TIM Participacoes SA (NYSE:TSU). All of these stocks' market caps are similar to FIVE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HXL,26,122315,3 AYX,44,1334248,6 CTLT,27,392969,7 TSU,13,290605,1 Average,27.5,535034,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $469 million in FIVE's case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 13 bullish hedge fund positions. Five Below Inc (NASDAQ:FIVE) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 FIVE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FIVE were disappointed as the stock returned 19.3% in 2019 (through December 23rd) 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 this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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