Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Burlington Stores Inc (NYSE:BURL) makes for a good investment right now.
Burlington Stores Inc (NYSE:BURL) has seen a decrease in enthusiasm from smart money recently. BURL was in 36 hedge funds' portfolios at the end of December. There were 39 hedge funds in our database with BURL holdings at the end of the previous quarter. Our calculations also showed that BURL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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' 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 41 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.
[caption id="attachment_340081" align="aligncenter" width="400"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a look at the recent hedge fund action encompassing Burlington Stores Inc (NYSE:BURL).
Hedge fund activity in Burlington Stores Inc (NYSE:BURL)
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BURL over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Adage Capital Management held the most valuable stake in Burlington Stores Inc (NYSE:BURL), which was worth $402.1 million at the end of the third quarter. On the second spot was Third Point which amassed $319.2 million worth of shares. Citadel Investment Group, Dorsal Capital Management, and Millennium Management 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 Dorsal Capital Management allocated the biggest weight to Burlington Stores Inc (NYSE:BURL), around 5.18% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, setting aside 4.74 percent of its 13F equity portfolio to BURL.
Judging by the fact that Burlington Stores Inc (NYSE:BURL) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers who were dropping their entire stakes heading into Q4. At the top of the heap, David Keidan's Buckingham Capital Management cut the largest stake of the "upper crust" of funds followed by Insider Monkey, totaling close to $20.2 million in stock. Sander Gerber's fund, Hudson Bay Capital Management, also dumped its stock, about $9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Burlington Stores Inc (NYSE:BURL). These stocks are Waters Corporation (NYSE:WAT), Mid America Apartment Communities Inc (NYSE:MAA), Westinghouse Air Brake Technologies Corp (NYSE:WAB), and Wynn Resorts, Limited (NASDAQ:WYNN). This group of stocks' market valuations are similar to BURL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAT,27,568485,-1 MAA,24,234313,4 WAB,41,2013819,5 WYNN,44,1066566,6 Average,34,970796,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $971 million. That figure was $1375 million in BURL's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 24 bullish hedge fund positions. Burlington Stores Inc (NYSE:BURL) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately BURL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BURL were disappointed as the stock returned -42.2% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.