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Are Hedge Funds Behind J.C. Penney Company (JCP)’s Fourth Quarter Gains?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2019. What do these smart investors think about J.C. Penney Company, Inc. (NYSE:JCP)?

J.C. Penney Company, Inc. (NYSE:JCP) has experienced an increase in support from the world's most elite money managers in recent months. Our calculations also showed that JCP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? 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_365194" align="alignnone" width="600"] David E. Shaw of D.E. Shaw[/caption]  

David E. Shaw of D.E. Shaw

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to view the latest hedge fund action regarding J.C. Penney Company, Inc. (NYSE:JCP).

How are hedge funds trading J.C. Penney Company, Inc. (NYSE:JCP)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards JCP over the last 17 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is JCP A Good Stock To Buy?

Of the funds tracked by Insider Monkey, D E Shaw holds the largest position in J.C. Penney Company, Inc. (NYSE:JCP). D E Shaw has a $7.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Winton Capital Management, led by David Harding, holding a $6 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Amit Nitin Doshi's Harbor Spring Capital, Philippe Laffont's Coatue Management and Jonathan Kolatch's Redwood Capital Management. In terms of the portfolio weights assigned to each position Harbor Spring Capital allocated the biggest weight to J.C. Penney Company, Inc. (NYSE:JCP), around 0.67% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, earmarking 0.41 percent of its 13F equity portfolio to JCP.

As one would reasonably expect, specific money managers were leading the bulls' herd. Coatue Management, managed by Philippe Laffont, assembled the largest position in J.C. Penney Company, Inc. (NYSE:JCP). Coatue Management had $1.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as J.C. Penney Company, Inc. (NYSE:JCP) but similarly valued. We will take a look at Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), Timkensteel Corp (NYSE:TMST), Sorrentto Therapeutics Inc (NASDAQ:SRNE), and Seres Therapeutics Inc (NASDAQ:MCRB). All of these stocks' market caps are similar to JCP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLMT,5,8800,0 TMST,14,38476,-2 SRNE,3,876,-2 MCRB,6,6889,-1 Average,7,13760,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $27 million in JCP's case. Timkensteel Corp (NYSE:TMST) is the most popular stock in this table. On the other hand Sorrentto Therapeutics Inc (NASDAQ:SRNE) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks J.C. Penney Company, Inc. (NYSE:JCP) is more popular among hedge funds. 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. Hedge funds were also right about betting on JCP as the stock returned 27% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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