The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Biglari Holdings Inc (NYSE:BH), and what that likely means for the prospects of the company and its stock.
Biglari Holdings Inc (NYSE:BH) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Cumulus Media Inc (NASDAQ:CMLS), Netfin Acquisition Corp. (NASDAQ:NFIN), and Republic First Bancorp, Inc. (NASDAQ:FRBK) to gather more data points. Our calculations also showed that BH 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.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 analyze the new hedge fund action regarding Biglari Holdings Inc (NYSE:BH).
Hedge fund activity in Biglari Holdings Inc (NYSE:BH)
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in BH a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Fondren Management, managed by Bradley Louis Radoff, holds the biggest position in Biglari Holdings Inc (NYSE:BH). Fondren Management has a $12.3 million position in the stock, comprising 10.2% of its 13F portfolio. Coming in second is Mario Gabelli of GAMCO Investors, with a $8.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Jay Petschek and Steven Major's Corsair Capital Management, Renaissance Technologies and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Fondren Management allocated the biggest weight to Biglari Holdings Inc (NYSE:BH), around 10.25% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, earmarking 0.88 percent of its 13F equity portfolio to BH.
Since Biglari Holdings Inc (NYSE:BH) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that elected to cut their full holdings heading into Q4. Interestingly, Israel Englander's Millennium Management said goodbye to the biggest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $0.7 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund dumped about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Biglari Holdings Inc (NYSE:BH) but similarly valued. These stocks are Cumulus Media Inc (NASDAQ:CMLS), Netfin Acquisition Corp. (NASDAQ:NFIN), Republic First Bancorp, Inc. (NASDAQ:FRBK), and Moneygram International Inc (NYSE:MGI). This group of stocks' market values match BH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMLS,12,85391,3 NFIN,11,42194,11 FRBK,5,5505,-1 MGI,10,15716,-3 Average,9.5,37202,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $38 million in BH's case. Cumulus Media Inc (NASDAQ:CMLS) is the most popular stock in this table. On the other hand Republic First Bancorp, Inc. (NASDAQ:FRBK) is the least popular one with only 5 bullish hedge fund positions. Biglari Holdings Inc (NYSE:BH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BH were disappointed as the stock returned 3.5% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.