Is Stamps.com Inc. (NASDAQ:STMP) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Stamps.com Inc. (NASDAQ:STMP) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that STMP isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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. Let's review the recent hedge fund action surrounding Stamps.com Inc. (NASDAQ:STMP).
What does smart money think about Stamps.com Inc. (NASDAQ:STMP)?
At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -34% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STMP over the last 16 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Okumus Fund Management held the most valuable stake in Stamps.com Inc. (NASDAQ:STMP), which was worth $50.9 million at the end of the second quarter. On the second spot was D E Shaw which amassed $40.1 million worth of shares. Moreover, Fisher Asset Management, Simcoe Capital Management, and Millennium Management were also bullish on Stamps.com Inc. (NASDAQ:STMP), allocating a large percentage of their portfolios to this stock.
Because Stamps.com Inc. (NASDAQ:STMP) has faced declining sentiment from hedge fund managers, it's safe to say that there was a specific group of funds that decided to sell off their entire stakes last quarter. Interestingly, Amish Mehta's SQN Investors sold off the largest investment of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $66.6 million in stock, and Genevieve Kahr's Ailanthus Capital Management was right behind this move, as the fund dumped about $21.2 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 10 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Stamps.com Inc. (NASDAQ:STMP). These stocks are Myovant Sciences Ltd. (NYSE:MYOV), Pitney Bowes Inc. (NYSE:PBI), ConnectOne Bancorp Inc (NASDAQ:CNOB), and Clovis Oncology Inc (NASDAQ:CLVS). This group of stocks' market caps are similar to STMP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MYOV,8,80166,2 PBI,18,68134,-6 CNOB,9,44949,-1 CLVS,24,268085,-5 Average,14.75,115334,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $216 million in STMP's case. Clovis Oncology Inc (NASDAQ:CLVS) is the most popular stock in this table. On the other hand Myovant Sciences Ltd. (NYSE:MYOV) is the least popular one with only 8 bullish hedge fund positions. Stamps.com Inc. (NASDAQ:STMP) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on STMP as the stock returned 64.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.