At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Best Buy Co., Inc. (NYSE:BBY) makes for a good investment right now.
Is Best Buy Co., Inc. (NYSE:BBY) ready to rally soon? Hedge funds are becoming less confident. The number of long hedge fund bets were trimmed by 4 recently. Our calculations also showed that BBY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BBY was in 27 hedge funds' portfolios at the end of September. There were 31 hedge funds in our database with BBY holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
[caption id="attachment_189632" align="aligncenter" width="600"] David Harding of Winton Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the fresh hedge fund action surrounding Best Buy Co., Inc. (NYSE:BBY).
How have hedgies been trading Best Buy Co., Inc. (NYSE:BBY)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in BBY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Best Buy Co., Inc. (NYSE:BBY), which was worth $297.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $120.8 million worth of shares. Two Sigma Advisors, Alyeska Investment Group, and Winton Capital Management 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 Buckingham Capital Management allocated the biggest weight to Best Buy Co., Inc. (NYSE:BBY), around 0.89% of its portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.84 percent of its 13F equity portfolio to BBY.
Seeing as Best Buy Co., Inc. (NYSE:BBY) has experienced bearish sentiment from hedge fund managers, it's easy to see that there is a sect of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Brandon Haley's Holocene Advisors sold off the largest position of the 750 funds followed by Insider Monkey, valued at an estimated $51.1 million in stock, and Ken Heebner's Capital Growth Management was right behind this move, as the fund dumped about $8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Best Buy Co., Inc. (NYSE:BBY). We will take a look at CMS Energy Corporation (NYSE:CMS), Lennar Corporation (NYSE:LEN), KeyCorp (NYSE:KEY), and Centene Corp (NYSE:CNC). This group of stocks' market caps are similar to BBY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMS,26,942764,4 LEN,57,1988724,4 KEY,28,671066,-3 CNC,55,2034586,-10 Average,41.5,1409285,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $1409 million. That figure was $628 million in BBY's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand CMS Energy Corporation (NYSE:CMS) is the least popular one with only 26 bullish hedge fund positions. Best Buy Co., Inc. (NYSE:BBY) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on BBY as the stock returned 16.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.