Is VRA A Good Stock To Buy Now?
Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Vera Bradley, Inc. (NASDAQ:VRA) changed recently.
Is VRA a good stock to buy now? Vera Bradley, Inc. (NASDAQ:VRA) shareholders have witnessed an increase in hedge fund sentiment lately. Vera Bradley, Inc. (NASDAQ:VRA) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. Our calculations also showed that VRA 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.
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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Andre Perold of HighVista Strategies
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 let's view the latest hedge fund action surrounding Vera Bradley, Inc. (NASDAQ:VRA).
Do Hedge Funds Think VRA Is A Good Stock To Buy Now?
At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VRA over the last 21 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Rima Senvest Management was the largest shareholder of Vera Bradley, Inc. (NASDAQ:VRA), with a stake worth $6.3 million reported as of the end of September. Trailing Rima Senvest Management was Renaissance Technologies, which amassed a stake valued at $5.4 million. Rutabaga Capital Management, Royce & Associates, and D E Shaw 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 Rutabaga Capital Management allocated the biggest weight to Vera Bradley, Inc. (NASDAQ:VRA), around 2.31% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to VRA.
Consequently, key money managers were breaking ground themselves. Rima Senvest Management, managed by Richard Mashaal, established the most outsized position in Vera Bradley, Inc. (NASDAQ:VRA). Rima Senvest Management had $6.3 million invested in the company at the end of the quarter. Ali Motamed's Invenomic Capital Management also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Andre F. Perold's HighVista Strategies, and Thomas Bailard's Bailard Inc.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Vera Bradley, Inc. (NASDAQ:VRA) but similarly valued. We will take a look at Misonix, Inc. (NASDAQ:MSON), BlueLinx Holdings Inc. (NYSE:BXC), Nesco Holdings, Inc. (NYSE:NSCO), scPharmaceuticals Inc. (NASDAQ:SCPH), PCSB Financial Corporation (NASDAQ:PCSB), Rayonier Advanced Materials Inc (NYSE:RYAM), and Park-Ohio Holdings Corp. (NASDAQ:PKOH). This group of stocks' market valuations resemble VRA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSON,10,24393,3 BXC,13,64708,3 NSCO,11,11984,1 SCPH,12,85081,1 PCSB,11,17872,2 RYAM,10,19326,0 PKOH,6,16550,-2 Average,10.4,34273,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $30 million in VRA's case. BlueLinx Holdings Inc. (NYSE:BXC) is the most popular stock in this table. On the other hand Park-Ohio Holdings Corp. (NASDAQ:PKOH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Vera Bradley, Inc. (NASDAQ:VRA) is more popular among hedge funds. Our overall hedge fund sentiment score for VRA is 81.2. 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 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on VRA as the stock returned 22.7% since the end of September (through 12/14) 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.
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