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Hedge Funds Are Nibbling On Big Lots, Inc. (BIG)

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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Big Lots, Inc. (NYSE:BIG).

Is Big Lots, Inc. (NYSE:BIG) a healthy stock for your portfolio? Money managers were becoming hopeful. The number of bullish hedge fund positions rose by 1 in recent months. Big Lots, Inc. (NYSE:BIG) was in 20 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 26. Our calculations also showed that BIG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Fred DiSanto Ancora Advisors
Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to check out the recent hedge fund action encompassing Big Lots, Inc. (NYSE:BIG).

Do Hedge Funds Think BIG Is A Good Stock To Buy Now?

At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in BIG a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Mill Road Capital Management held the most valuable stake in Big Lots, Inc. (NYSE:BIG), which was worth $117.2 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $43.6 million worth of shares. Citadel Investment Group, Renaissance Technologies, and Ancora Advisors 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 Mill Road Capital Management allocated the biggest weight to Big Lots, Inc. (NYSE:BIG), around 38.77% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to BIG.

As aggregate interest increased, key hedge funds have been driving this bullishness. Renaissance Technologies, initiated the most valuable position in Big Lots, Inc. (NYSE:BIG). Renaissance Technologies had $15.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $11.8 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, D. E. Shaw's D E Shaw, and Chuck Royce's Royce & Associates.

Let's also examine hedge fund activity in other stocks similar to Big Lots, Inc. (NYSE:BIG). We will take a look at Global Blood Therapeutics Inc (NASDAQ:GBT), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), Murphy Oil Corporation (NYSE:MUR), First Merchants Corporation (NASDAQ:FRME), The St. Joe Company (NYSE:JOE), Callaway Golf Company (NYSE:ELY), and UP Fintech Holding Limited (NASDAQ:TIGR). This group of stocks' market valuations match BIG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBT,19,594683,-7 LGND,13,61979,-6 MUR,20,139295,2 FRME,11,135533,2 JOE,17,1178397,5 ELY,40,504141,0 TIGR,14,103231,6 Average,19.1,388180,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $230 million in BIG's case. Callaway Golf Company (NYSE:ELY) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 11 bullish hedge fund positions. Big Lots, Inc. (NYSE:BIG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BIG is 44.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately BIG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BIG were disappointed as the stock returned -13.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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