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Did Hedge Funds Make The Right Call On Box, Inc. (BOX) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Box, Inc. (NYSE:BOX) and determine whether hedge funds had an edge regarding this stock.

Box, Inc. (NYSE:BOX) has experienced a decrease in support from the world’s most elite money managers of late. BOX was in 34 hedge funds’ portfolios at the end of the first quarter of 2020. There were 35 hedge funds in our database with BOX holdings at the end of the previous quarter. Our calculations also showed that BOX 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the latest hedge fund action encompassing Box, Inc. (NYSE:BOX).

How are hedge funds trading Box, Inc. (NYSE:BOX)?

At Q1’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in BOX a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is BOX A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Starboard Value LP, managed by Jeffrey Smith, holds the most valuable position in Box, Inc. (NYSE:BOX). Starboard Value LP has a $163.9 million position in the stock, comprising 6.6% of its 13F portfolio. Sitting at the No. 2 spot is RGM Capital, led by Robert G. Moses, holding a $87.3 million position; the fund has 6.9% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Brian Bares’s Bares Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Wallace Weitz’s Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to Box, Inc. (NYSE:BOX), around 6.86% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, setting aside 6.65 percent of its 13F equity portfolio to BOX.

Since Box, Inc. (NYSE:BOX) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds that slashed their positions entirely last quarter. Intriguingly, Ryan Frick and Oliver Evans’s Dorsal Capital Management sold off the largest investment of all the hedgies watched by Insider Monkey, valued at close to $33.1 million in stock, and Phillip Goldstein, Andrew Dakos and Steven Samuels’s Bulldog Investors was right behind this move, as the fund cut about $3 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Box, Inc. (NYSE:BOX) but similarly valued. These stocks are Cal-Maine Foods Inc (NASDAQ:CALM), PacWest Bancorp (NASDAQ:PACW), Element Solutions Inc. (NYSE:ESI), and PotlatchDeltic Corporation (NASDAQ:PCH). This group of stocks’ market values resemble BOX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CALM 26 219068 11
PACW 23 121550 -8
ESI 35 387209 -2
PCH 16 234507 0
Average 25 240584 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $487 million in BOX’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 16 bullish hedge fund positions. Box, Inc. (NYSE:BOX) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on BOX as the stock returned 47.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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