Is Smart Money Turning More Positive on Bed Bath & Beyond Inc. (BBBY)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. The second half of 2015 and the first few months of this year was a stressful period for hedge funds. However, things have been taking a turn for the better in the second half of this year. Small-cap stocks which hedge funds are usually overweight outperformed the market by double digits and it may be a good time to pay attention to hedge funds’ picks before it is too late. In this article we are going to analyze the hedge fund sentiment towards Bed Bath & Beyond Inc. (NASDAQ:BBBY) to find out whether it was one of their high conviction long-term ideas.

Is Bed Bath & Beyond Inc. (NASDAQ:BBBY) a cheap investment now? The best stock pickers are taking an optimistic view. The number of bullish hedge fund positions rose by two lately. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Avery Dennison Corp (NYSE:AVY), Shire PLC (ADR) (NASDAQ:SHPG), and Signature Bank (NASDAQ:SBNY) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s review the latest action encompassing Bed Bath & Beyond Inc. (NASDAQ:BBBY).

What does the smart money think about Bed Bath & Beyond Inc. (NASDAQ:BBBY)?

At the  end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, which represents a gain of 7% from the second quarter of 2016. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Harding’s Winton Capital Management has the biggest position in Bed Bath & Beyond Inc. (NASDAQ:BBBY), worth close to $30.7 million. The second largest stake is held by Water Street Capital, led by Gilchrist Berg, holding a $26.2 million position; the fund has 1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Brett Barakett’s Tremblant Capital, Jim Simons’ Renaissance Technologies, and Cliff Asness’ AQR Capital Management.

As aggregate interest increased, specific money managers have been driving this bullishness. Tremblant Capital, managed by Brett Barakett, established the most valuable call position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Tremblant Capital had $25.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $7.7 million position during the quarter. The following funds were also among the new BBBY investors: Brett Barakett’s Tremblant Capital, Matthew Tewksbury’s Stevens Capital Management, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Bed Bath & Beyond Inc. (NASDAQ:BBBY). These stocks are Avery Dennison Corp (NYSE:AVY), Shire PLC (ADR) (NASDAQ:SHPG), Signature Bank (NASDAQ:SBNY), and Allegion PLC (NYSE:ALLE). This group of stocks’ market valuations resemble BBBY’s market valuation.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1.33 billion. That figure was just $220 million in BBBY’s case. Shire PLC (ADR) (NASDAQ:SHPG) is the most popular stock in this table. On the other hand Signature Bank (NASDAQ:SBNY) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) is even less popular than Signature Bank (NASDAQ:SBNY). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None