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Hedge Funds Warming Up To BJ’s Wholesale Club Holdings (BJ)

Abigail Fisher

In this article we will take a look at whether hedge funds think BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) a good stock to buy now? Investors who are in the know are in a bullish mood. The number of bullish hedge fund positions inched up by 4 lately. Our calculations also showed that BJ isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26575" align="aligncenter" width="399"] Louis Bacon Moore of Moore Capital[/caption]

MOORE GLOBAL INVESTMENTS

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the key hedge fund action encompassing BJ's Wholesale Club Holdings, Inc. (NYSE:BJ).

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

At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% 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 review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), which was worth $69.1 million at the end of the third quarter. On the second spot was Sirios Capital Management which amassed $24.4 million worth of shares. Marshall Wace LLP, Moore Global Investments, and Alyeska Investment Group 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 Game Creek Capital allocated the biggest weight to BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), around 2.77% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, designating 2.16 percent of its 13F equity portfolio to BJ.

As industrywide interest jumped, key hedge funds have jumped into BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most outsized position in BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). Marshall Wace LLP had $11.1 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also initiated a $8.5 million position during the quarter. The other funds with brand new BJ positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Brad Stephens's Six Columns Capital, and Sean Murphy's Game Creek Capital.

Let's also examine hedge fund activity in other stocks similar to BJ's Wholesale Club Holdings, Inc. (NYSE:BJ). We will take a look at Zai Lab Limited (NASDAQ:ZLAB), Cullen/Frost Bankers, Inc. (NYSE:CFR), First Citizens BancShares Inc. (NASDAQ:FCNCA), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks' market values resemble BJ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZLAB,22,364537,-4 CFR,18,40108,0 FCNCA,17,129488,-6 THG,24,134965,3 Average,20.25,167275,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $157 million in BJ's case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 17 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on BJ as the stock returned 41.3% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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