Did Hedge Funds Make The Right Call On BlackBerry Limited (BB) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards BlackBerry Limited (NYSE:BB) at the end of the first quarter and determine whether the smart money was really smart about this stock.

BlackBerry Limited (NYSE:BB) was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. BB investors should be aware of a decrease in hedge fund interest lately. There were 27 hedge funds in our database with BB positions at the end of the previous quarter. Our calculations also showed that BB isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Prem Watsa of Fairfax Financial Holdings

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to go over the fresh hedge fund action regarding BlackBerry Limited (NYSE:BB).

How have hedgies been trading BlackBerry Limited (NYSE:BB)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BB over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Prem Watsa’s Fairfax Financial Holdings has the biggest position in BlackBerry Limited (NYSE:BB), worth close to $191 million, comprising 13.2% of its total 13F portfolio. On Fairfax Financial Holdings’s heels is Iridian Asset Management, managed by David Cohen and Harold Levy, which holds a $29.6 million position; 0.7% of its 13F portfolio is allocated to the company. Some other peers that are bullish contain Kahn Brothers, D. E. Shaw’s D E Shaw and Michael Price’s MFP Investors. In terms of the portfolio weights assigned to each position Fairfax Financial Holdings allocated the biggest weight to BlackBerry Limited (NYSE:BB), around 13.23% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, dishing out 4.4 percent of its 13F equity portfolio to BB.

Because BlackBerry Limited (NYSE:BB) has experienced a decline in interest from hedge fund managers, we can see that there was a specific group of fund managers that decided to sell off their entire stakes last quarter. It’s worth mentioning that Prem Watsa’s Fairfax Financial Holdings dumped the largest investment of the 750 funds monitored by Insider Monkey, valued at about $506.4 million in stock, and Michael Burry’s Scion Asset Management was right behind this move, as the fund dumped about $5.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 5 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as BlackBerry Limited (NYSE:BB) but similarly valued. We will take a look at Tempur Sealy International Inc. (NYSE:TPX), J&J Snack Foods Corp. (NASDAQ:JJSF), Valmont Industries, Inc. (NYSE:VMI), and Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). All of these stocks’ market caps are similar to BB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPX 38 501858 -4
JJSF 17 83077 4
VMI 24 218687 0
DCPH 28 603787 0
Average 26.75 351852 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $280 million in BB’s case. Tempur Sealy International Inc. (NYSE:TPX) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 17 bullish hedge fund positions. BlackBerry Limited (NYSE:BB) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately BB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BB investors were disappointed as the stock returned 18.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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