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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Michaels Companies Inc (NASDAQ:MIK) to find out whether there were any major changes in hedge funds' views.
Is MIK stock a buy? The best stock pickers were in a bearish mood. The number of bullish hedge fund positions retreated by 5 recently. Michaels Companies Inc (NASDAQ:MIK) was in 33 hedge funds' portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that MIK isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).
Ken Heebner of Capital Growth Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to view the latest hedge fund action encompassing Michaels Companies Inc (NASDAQ:MIK).
Do Hedge Funds Think MIK Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MIK over the last 22 quarters. 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, Contrarius Investment Management held the most valuable stake in Michaels Companies Inc (NASDAQ:MIK), which was worth $116.9 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $41 million worth of shares. Arrowstreet Capital, Capital Growth Management, and Two Sigma 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 Contrarius Investment Management allocated the biggest weight to Michaels Companies Inc (NASDAQ:MIK), around 7.24% of its 13F portfolio. Steamboat Capital Partners is also relatively very bullish on the stock, earmarking 7.16 percent of its 13F equity portfolio to MIK.
Due to the fact that Michaels Companies Inc (NASDAQ:MIK) has witnessed a decline in interest from the smart money, it's safe to say that there was a specific group of money managers that decided to sell off their full holdings by the end of the fourth quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dumped the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $10.4 million in stock, and Kamyar Khajavi's MIK Capital was right behind this move, as the fund cut about $5.7 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds by the end of the fourth quarter.
Let's check out hedge fund activity in other stocks similar to Michaels Companies Inc (NASDAQ:MIK). We will take a look at BancFirst Corporation (NASDAQ:BANF), Comfort Systems USA, Inc. (NYSE:FIX), Hostess Brands, Inc. (NASDAQ:TWNK), Micro Focus Intl PLC (NYSE:MFGP), Genworth Financial Inc (NYSE:GNW), Domo Inc. (NASDAQ:DOMO), and Inter Parfums, Inc. (NASDAQ:IPAR). This group of stocks' market values match MIK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BANF,2,631,-2 FIX,20,61408,-4 TWNK,26,300514,-4 MFGP,10,31943,0 GNW,36,281922,-2 DOMO,22,282591,-2 IPAR,12,83639,-5 Average,18.3,148950,-2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $403 million in MIK's case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 2 bullish hedge fund positions. Michaels Companies Inc (NASDAQ:MIK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MIK is 71.6. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. Hedge funds were also right about betting on MIK as the stock returned 68.6% since the end of Q4 (through 4/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.