U.S. Markets closed

Were Hedge Funds Right About Tuning Out Best Buy Co., Inc. (BBY)?

Reymerlyn Martin

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Best Buy Co., Inc. (NYSE:BBY) has seen a decrease in hedge fund interest recently. Our calculations also showed that BBY isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken-Heebner

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the recent hedge fund action surrounding Best Buy Co., Inc. (NYSE:BBY).

How are hedge funds trading Best Buy Co., Inc. (NYSE:BBY)?

Heading into the third quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BBY over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

BBY_oct2019

More specifically, AQR Capital Management was the largest shareholder of Best Buy Co., Inc. (NYSE:BBY), with a stake worth $331 million reported as of the end of March. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $189.5 million. Two Sigma Advisors, Holocene Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Best Buy Co., Inc. (NYSE:BBY) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there were a few money managers who were dropping their entire stakes heading into Q3. Interestingly, Robert Pohly's Samlyn Capital sold off the biggest position of the 750 funds watched by Insider Monkey, worth close to $19 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund said goodbye to about $19 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Best Buy Co., Inc. (NYSE:BBY). These stocks are Smith & Nephew plc (NYSE:SNN), Liberty Broadband Corp (NASDAQ:LBRDK), CBS Corporation (NYSE:CBS), and Hess Corporation (NYSE:HES). This group of stocks' market valuations are closest to BBY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNN,14,318986,1 LBRDK,40,3455587,1 CBS,50,1708960,4 HES,35,1575949,6 Average,34.75,1764871,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1765 million. That figure was $991 million in BBY's case. CBS Corporation (NYSE:CBS) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 14 bullish hedge fund positions. Best Buy Co., Inc. (NYSE:BBY) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BBY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BBY investors were disappointed as the stock returned -0.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content