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In this article we will check out the progression of hedge fund sentiment towards Store Capital Corporation (NYSE:STOR) and determine whether it is a good investment 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 employ 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.
Is Store Capital Corporation (NYSE:STOR) the right pick for your portfolio? Hedge funds are turning bullish. The number of long hedge fund bets inched up by 5 in recent months. Our calculations also showed that STOR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). STOR was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with STOR positions at the end of the previous quarter.
Video: 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' 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
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Warren Buffett of Berkshire Hathaway[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a look at the new hedge fund action encompassing Store Capital Corporation (NYSE:STOR).
What have hedge funds been doing with Store Capital Corporation (NYSE:STOR)?
Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in STOR a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in Store Capital Corporation (NYSE:STOR), which was worth $337.4 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $39 million worth of shares. Hudson Executive Capital, Renaissance Technologies, and Millennium 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 Hudson Executive Capital allocated the biggest weight to Store Capital Corporation (NYSE:STOR), around 2.04% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to STOR.
As industrywide interest jumped, key hedge funds were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Store Capital Corporation (NYSE:STOR). Arrowstreet Capital had $5.4 million invested in the company at the end of the quarter. Adam Peterson's Magnolia Capital Fund also initiated a $2.2 million position during the quarter. The following funds were also among the new STOR investors: Dmitry Balyasny's Balyasny Asset Management, Paul Tudor Jones's Tudor Investment Corp, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Store Capital Corporation (NYSE:STOR) but similarly valued. We will take a look at Stericycle Inc (NASDAQ:SRCL), Life Storage, Inc. (NYSE:LSI), ONE Gas Inc (NYSE:OGS), and LHC Group, Inc. (NASDAQ:LHCG). All of these stocks' market caps are similar to STOR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRCL,20,571854,-4 LSI,22,155858,2 OGS,16,55599,0 LHCG,27,152070,1 Average,21.25,233845,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $444 million in STOR's case. LHC Group, Inc. (NASDAQ:LHCG) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 16 bullish hedge fund positions. Store Capital Corporation (NYSE:STOR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on STOR as the stock returned 32.8% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.