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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 Store Capital Corporation (NYSE:STOR) to find out whether there were any major changes in hedge funds' views.
Is STOR a good stock to buy now? Hedge funds were taking a bullish view. The number of long hedge fund positions went up by 4 recently. Store Capital Corporation (NYSE:STOR) was in 20 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 26. Our calculations also showed that STOR 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.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 look at the fresh hedge fund action regarding Store Capital Corporation (NYSE:STOR).
Do Hedge Funds Think STOR Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STOR over the last 21 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Warren Buffett's Berkshire Hathaway has the biggest position in Store Capital Corporation (NYSE:STOR), worth close to $669.7 million, corresponding to 0.3% of its total 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $26.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Douglas Braunstein and James Woolery's Hudson Executive Capital, Daniel Johnson's Gillson Capital and Randall Smith's Alden Global Capital. In terms of the portfolio weights assigned to each position Alden Global Capital allocated the biggest weight to Store Capital Corporation (NYSE:STOR), around 3.62% of its 13F portfolio. Hudson Executive Capital is also relatively very bullish on the stock, designating 2.5 percent of its 13F equity portfolio to STOR.
As one would reasonably expect, key hedge funds have jumped into Store Capital Corporation (NYSE:STOR) headfirst. Gillson Capital, managed by Daniel Johnson, assembled the largest position in Store Capital Corporation (NYSE:STOR). Gillson Capital had $13.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $3.8 million investment in the stock during the quarter. The other funds with brand new STOR positions are Paul Tudor Jones's Tudor Investment Corp, Charles Davidson and Joseph Jacobs's Wexford Capital, and Kerr Neilson's Platinum Asset Management.
Let's check out hedge fund activity in other stocks similar to Store Capital Corporation (NYSE:STOR). These stocks are Mohawk Industries, Inc. (NYSE:MHK), GFL Environmental Inc. (NYSE:GFL), argenx SE (NASDAQ:ARGX), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), The Mosaic Company (NYSE:MOS), Cabot Oil & Gas Corporation (NYSE:COG), and Tandem Diabetes Care Inc (NASDAQ:TNDM). This group of stocks' market valuations are closest to STOR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MHK,41,701743,9 GFL,20,361757,4 ARGX,22,1144400,-7 KNX,52,618019,13 MOS,31,714302,-1 COG,25,203223,-6 TNDM,30,379857,-2 Average,31.6,589043,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $589 million. That figure was $763 million in STOR's case. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Store Capital Corporation (NYSE:STOR) is even less popular than GFL. Our overall hedge fund sentiment score for STOR is 32.1. 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. Hedge funds clearly dropped the ball on STOR as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on STOR as the stock returned 18% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.