The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Blue Bird Corporation (NASDAQ:BLBD) from the perspective of those elite funds.
Blue Bird Corporation (NASDAQ:BLBD) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that BLBD 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.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. We're going to check out the fresh hedge fund action regarding Blue Bird Corporation (NASDAQ:BLBD).
How have hedgies been trading Blue Bird Corporation (NASDAQ:BLBD)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in BLBD over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, John Osterweis's Osterweis Capital Management has the largest position in Blue Bird Corporation (NASDAQ:BLBD), worth close to $33.7 million, comprising 2.4% of its total 13F portfolio. On Osterweis Capital Management's heels is Julian Allen of Spitfire Capital, with a $18.7 million position; 19.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of Renaissance Technologies, Arnaud Ajdler's Engine Capital and Ken Griffin's Citadel Investment Group.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified BLBD as a viable investment and initiated a position in the stock.
Let's now take a look at hedge fund activity in other stocks similar to Blue Bird Corporation (NASDAQ:BLBD). These stocks are The Bancorp, Inc. (NASDAQ:TBBK), Gores Metropoulos, Inc. (NASDAQ:GMHI), CytomX Therapeutics, Inc. (NASDAQ:CTMX), and Whitestone REIT (NYSE:WSR). This group of stocks' market caps resemble BLBD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TBBK,17,80825,1 GMHI,20,163482,2 CTMX,15,92893,-3 WSR,4,16913,-1 Average,14,88528,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $66 million in BLBD's case. Gores Metropoulos, Inc. (NASDAQ:GMHI) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 4 bullish hedge fund positions. Blue Bird Corporation (NASDAQ:BLBD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BLBD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BLBD investors were disappointed as the stock returned -3.3% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.