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 Spectrum Brands Holdings, Inc. (NYSE:SPB)? The smart money sentiment can provide an answer to this question.
Is SPB a good stock to buy? Spectrum Brands Holdings, Inc. (NYSE:SPB) investors should pay attention to an increase in hedge fund interest in recent months. Spectrum Brands Holdings, Inc. (NYSE:SPB) was in 38 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 45. There were 26 hedge funds in our database with SPB holdings at the end of June. Our calculations also showed that SPB 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David S. Winter of 40 North 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. Now let's take a look at the recent hedge fund action encompassing Spectrum Brands Holdings, Inc. (NYSE:SPB).
Do Hedge Funds Think SPB Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 46% from the second quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in SPB a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Spectrum Brands Holdings, Inc. (NYSE:SPB), which was worth $51.7 million at the end of the third quarter. On the second spot was Scopus Asset Management which amassed $41.4 million worth of shares. Millennium Management, AREX Capital Management, and Moerus Capital 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 AREX Capital Management allocated the biggest weight to Spectrum Brands Holdings, Inc. (NYSE:SPB), around 21.83% of its 13F portfolio. Moerus Capital Management is also relatively very bullish on the stock, setting aside 16.31 percent of its 13F equity portfolio to SPB.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, established the largest position in Spectrum Brands Holdings, Inc. (NYSE:SPB). Scopus Asset Management had $41.4 million invested in the company at the end of the quarter. David S. Winter and David J. Millstone's 40 North Management also initiated a $24.1 million position during the quarter. The following funds were also among the new SPB investors: Ben Gordon's Blue Grotto Capital, Noam Gottesman's GLG Partners, and Brian Scudieri's Kehrs Ridge Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Spectrum Brands Holdings, Inc. (NYSE:SPB) but similarly valued. We will take a look at American Eagle Outfitters Inc. (NYSE:AEO), NorthWestern Corporation (NASDAQ:NWE), Bloom Energy Corporation (NYSE:BE), Uniti Group Inc. (NASDAQ:UNIT), Itron, Inc. (NASDAQ:ITRI), Sensient Technologies Corporation (NYSE:SXT), and ABM Industries, Inc. (NYSE:ABM). This group of stocks' market valuations match SPB's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEO,42,763947,6 NWE,20,101486,-2 BE,17,176049,1 UNIT,22,351956,5 ITRI,15,276452,2 SXT,22,219122,-1 ABM,18,48485,-3 Average,22.3,276785,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $380 million in SPB's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Itron, Inc. (NASDAQ:ITRI) is the least popular one with only 15 bullish hedge fund positions. Spectrum Brands Holdings, Inc. (NYSE:SPB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPB is 77.9. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on SPB as the stock returned 29.7% since the end of Q3 (through 12/18) 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.