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Do Hedge Funds Love Best Buy Co., Inc. (BBY)?

Abigail Fisher

How do we determine whether Best Buy Co., Inc. (NYSE:BBY) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Best Buy Co., Inc. (NYSE:BBY) was in 27 hedge funds' portfolios at the end of September. BBY investors should be aware of a decrease in activity from the world's largest hedge funds of late. There were 30 hedge funds in our database with BBY positions at the end of the previous quarter. Our calculations also showed that BBY isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

Let's check out the key hedge fund action encompassing Best Buy Co., Inc. (NYSE:BBY).

What does the smart money think about Best Buy Co., Inc. (NYSE:BBY)?

Heading into the fourth quarter of 2018, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in BBY at the beginning of this year. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BBY_dec2018

More specifically, AQR Capital Management was the largest shareholder of Best Buy Co., Inc. (NYSE:BBY), with a stake worth $661.4 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $244.9 million. GLG Partners, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Best Buy Co., Inc. (NYSE:BBY) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies who were dropping their positions entirely in the third quarter. Intriguingly, John Tompkins's Tyvor Capital said goodbye to the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling about $28.2 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dumped its stock, about $18.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to Best Buy Co., Inc. (NYSE:BBY). These stocks are Tyson Foods, Inc. (NYSE:TSN), Liberty Global Plc (NASDAQ:LBTYK), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and CBS Corporation (NYSE:CBS). This group of stocks' market values match BBY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSN,39,1590018,8 LBTYK,41,3979823,1 IDXX,35,1184985,2 CBS,45,1341366,6 Average,40,2024048,4.25 [/table]

View table here if you experience formatting issues. As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $2.02 trillion. That figure was $1.56 billion in BBY's case. CBS Corporation (NYSE:CBS) is the most popular stock in this table. On the other hand IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks Best Buy Co., Inc. (NYSE:BBY) is even less popular than IDXX. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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