Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Stamps.com Inc. (NASDAQ:STMP)? The smart money sentiment can provide an answer to this question.
Is Stamps.com Inc. (NASDAQ:STMP) going to take off soon? The smart money is getting less optimistic. The number of long hedge fund bets retreated by 5 lately. Our calculations also showed that STMP isn't among the 30 most popular stocks among hedge funds. STMP was in 33 hedge funds' portfolios at the end of December. There were 38 hedge funds in our database with STMP positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the latest hedge fund action regarding Stamps.com Inc. (NASDAQ:STMP).
Hedge fund activity in Stamps.com Inc. (NASDAQ:STMP)
Heading into the first quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STMP over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, SQN Investors held the most valuable stake in Stamps.com Inc. (NASDAQ:STMP), which was worth $93.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $43.6 million worth of shares. Moreover, P2 Capital Partners, Calixto Global Investors, and Citadel Investment Group were also bullish on Stamps.com Inc. (NASDAQ:STMP), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Stamps.com Inc. (NASDAQ:STMP) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers that decided to sell off their positions entirely heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising about $12.6 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund said goodbye to about $7.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 5 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Stamps.com Inc. (NASDAQ:STMP) but similarly valued. These stocks are LendingTree, Inc (NASDAQ:TREE), Bank of Hawaii Corporation (NYSE:BOH), Eldorado Resorts Inc (NASDAQ:ERI), and Magnolia Oil & Gas Corporation (NYSE:MGY). This group of stocks' market values resemble STMP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREE,21,73640,3 BOH,13,102340,1 ERI,29,492002,5 MGY,32,264461,-5 Average,23.75,233111,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $360 million in STMP's case. Magnolia Oil & Gas Corporation (NYSE:MGY) is the most popular stock in this table. On the other hand Bank of Hawaii Corporation (NYSE:BOH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Stamps.com Inc. (NASDAQ:STMP) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately STMP wasn't nearly as popular as these 15 stock and hedge funds that were betting on STMP were disappointed as the stock returned -49.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.