U.S. Markets close in 2 hrs 31 mins

Hedge Funds Have Never Been This Bullish On BJ’s Wholesale Club Holdings, Inc. (BJ)

Nina Todic

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) a buy here? The smart money is getting more optimistic. The number of bullish hedge fund positions increased by 11 lately. Our calculations also showed that BJ isn't among the 30 most popular stocks among hedge funds (see the video below). BJ was in 33 hedge funds' portfolios at the end of the second quarter of 2019. There were 22 hedge funds in our database with BJ 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.

5 Most Popular Stocks Among Hedge Funds

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.

MOORE GLOBAL INVESTMENTS

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. Let's take a gander at the new hedge fund action regarding BJ's Wholesale Club Holdings, Inc. (NYSE:BJ).

How have hedgies been trading BJ's Wholesale Club Holdings, Inc. (NYSE:BJ)?

At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in BJ a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BJ Positions

Among these funds, Sirios Capital Management held the most valuable stake in BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), which was worth $113.4 million at the end of the second quarter. On the second spot was Element Capital Management which amassed $67.4 million worth of shares. Moreover, Millennium Management, Moore Global Investments, and Renaissance Technologies were also bullish on BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key hedge funds have jumped into BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) headfirst. Moore Global Investments, managed by Louis Bacon, initiated the most valuable position in BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). Moore Global Investments had $21.1 million invested in the company at the end of the quarter. Renaissance Technologies also made a $19.9 million investment in the stock during the quarter. The other funds with brand new BJ positions are Shane Finemore's Manikay Partners, Stephen J. Errico's Locust Wood Capital Advisers, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.

Let's now review hedge fund activity in other stocks similar to BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). These stocks are Telephone and Data Systems, Inc. (NYSE:TDS), DNP Select Income Fund Inc. (NYSE:DNP), KBR, Inc. (NYSE:KBR), and Weingarten Realty Investors (NYSE:WRI). All of these stocks' market caps are closest to BJ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDS,25,393297,2 DNP,1,455,-1 KBR,22,600423,2 WRI,20,102837,7 Average,17,274253,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $438 million in BJ's case. Telephone and Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand DNP Select Income Fund Inc. (NYSE:DNP) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is more popular among hedge funds. 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 BJ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BJ were disappointed as the stock returned -2% 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 in Q3.

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

Related Content