Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article, we are going to take a look at the recent smart money sentiment towards The E.W. Scripps Company (NYSE:SSP) and whether they were right about this stock.
Is The E.W. Scripps Company (NYSE:SSP) a buy here? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets fell by 5 even before the coronavirus scare hit the U.S. markets. Our calculations also showed that SSP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
[caption id="attachment_338410" align="aligncenter" width="400"] Jeffrey Bronchick of Cove Street Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the key hedge fund action encompassing The E.W. Scripps Company (NYSE:SSP).
How have hedgies been trading The E.W. Scripps Company (NYSE:SSP)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in SSP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The E.W. Scripps Company (NYSE:SSP) was held by GAMCO Investors, which reported holding $88.8 million worth of stock at the end of September. It was followed by Cove Street Capital with a $38.8 million position. Other investors bullish on the company included Minerva Advisors, Litespeed Management, and Deep Field Asset Management. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to The E.W. Scripps Company (NYSE:SSP), around 8.89% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to SSP.
Due to the fact that The E.W. Scripps Company (NYSE:SSP) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of fund managers who sold off their full holdings in the third quarter. It's worth mentioning that Renaissance Technologies said goodbye to the largest investment of all the hedgies followed by Insider Monkey, totaling about $1.4 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $0.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to The E.W. Scripps Company (NYSE:SSP). We will take a look at SM Energy Company (NYSE:SM), Benchmark Electronics, Inc. (NYSE:BHE), Triumph Group Inc (NYSE:TGI), and Revolve Group, Inc. (NYSE:RVLV). All of these stocks' market caps resemble SSP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SM,22,126463,1 BHE,19,52735,4 TGI,16,90783,2 RVLV,11,36551,-5 Average,17,76633,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $150 million in SSP's case. SM Energy Company (NYSE:SM) is the most popular stock in this table. On the other hand Revolve Group, Inc. (NYSE:RVLV) is the least popular one with only 11 bullish hedge fund positions. The E.W. Scripps Company (NYSE:SSP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately SSP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SSP investors were disappointed as the stock returned -51.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.