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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 The Michaels Companies Inc (NASDAQ:MIK)? The smart money sentiment can provide an answer to this question.
Is MIK a good stock to buy? Investors who are in the know were in a bullish mood. The number of long hedge fund bets went up by 17 in recent months. The Michaels Companies Inc (NASDAQ:MIK) was in 38 hedge funds' portfolios at the end of September. The all time high for this statistic is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MIK isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Jeffrey Altman of Owl Creek Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we're going to take a glance at the new hedge fund action surrounding The Michaels Companies Inc (NASDAQ:MIK).
Do Hedge Funds Think MIK Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 81% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MIK over the last 21 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in The Michaels Companies Inc (NASDAQ:MIK) was held by Contrarius Investment Management, which reported holding $91.6 million worth of stock at the end of September. It was followed by GoldenTree Asset Management with a $40.6 million position. Other investors bullish on the company included D E Shaw, Glenview Capital, and Owl Creek Asset Management. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to The Michaels Companies Inc (NASDAQ:MIK), around 8% of its 13F portfolio. GoldenTree Asset Management is also relatively very bullish on the stock, dishing out 3.58 percent of its 13F equity portfolio to MIK.
As aggregate interest increased, key money managers have been driving this bullishness. GoldenTree Asset Management, managed by Steven Tananbaum, established the biggest position in The Michaels Companies Inc (NASDAQ:MIK). GoldenTree Asset Management had $40.6 million invested in the company at the end of the quarter. Jeffrey Altman's Owl Creek Asset Management also initiated a $11.8 million position during the quarter. The other funds with brand new MIK positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Kamyar Khajavi's MIK Capital, and Ken Heebner's Capital Growth Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Michaels Companies Inc (NASDAQ:MIK) but similarly valued. We will take a look at Southwestern Energy Company (NYSE:SWN), Global Net Lease, Inc. (NYSE:GNL), Perficient, Inc. (NASDAQ:PRFT), Century Communities, Inc (NYSE:CCS), SiTime Corporation (NASDAQ:SITM), YPF Sociedad Anonima (NYSE:YPF), and OSI Systems, Inc. (NASDAQ:OSIS). This group of stocks' market valuations are similar to MIK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWN,19,217863,4 GNL,7,10377,0 PRFT,17,74006,-4 CCS,20,137952,-1 SITM,6,97608,-6 YPF,5,8535,-3 OSIS,17,70797,4 Average,13,88163,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $286 million in MIK's case. Century Communities, Inc (NYSE:CCS) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks The Michaels Companies Inc (NASDAQ:MIK) is more popular among hedge funds. Our overall hedge fund sentiment score for MIK is 90. 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. 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 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on MIK as the stock returned 20.5% since the end of September (through 12/18) 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.