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Did Hedge Funds Make The Right Call On Sally Beauty Holdings, Inc. (SBH)?

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 Sally Beauty Holdings, Inc. (NYSE:SBH) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Sally Beauty Holdings, Inc. (NYSE:SBH) a buy, sell, or hold? Money managers were getting less optimistic. The number of bullish hedge fund bets were trimmed by 8 recently. Our calculations also showed that SBH 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). SBH was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with SBH holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are several signals shareholders have at their disposal to size up their stock investments. A duo of the best signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top money managers can beat the broader indices by a healthy amount (see the details here).

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to analyze the new hedge fund action regarding Sally Beauty Holdings, Inc. (NYSE:SBH).

How are hedge funds trading Sally Beauty Holdings, Inc. (NYSE:SBH)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SBH over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SBH A Good Stock To Buy?

The largest stake in Sally Beauty Holdings, Inc. (NYSE:SBH) was held by Arrowstreet Capital, which reported holding $20 million worth of stock at the end of September. It was followed by AQR Capital Management with a $17.1 million position. Other investors bullish on the company included Prentice Capital Management, GAMCO Investors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Sally Beauty Holdings, Inc. (NYSE:SBH), around 4.52% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.36 percent of its 13F equity portfolio to SBH.

Seeing as Sally Beauty Holdings, Inc. (NYSE:SBH) has faced bearish sentiment from hedge fund managers, logic holds that there was a specific group of fund managers that slashed their positions entirely by the end of the first quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management sold off the biggest position of the 750 funds followed by Insider Monkey, totaling about $7.5 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also cut its stock, about $1.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Sally Beauty Holdings, Inc. (NYSE:SBH). We will take a look at The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), Supernus Pharmaceuticals Inc (NASDAQ:SUPN), Canadian Solar Inc. (NASDAQ:CSIQ), and Seacoast Banking Corporation of Florida (NASDAQ:SBCF). This group of stocks’ market caps resemble SBH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTB 18 68973 1
SUPN 23 130980 3
CSIQ 11 86580 -3
SBCF 8 11443 0
Average 15 74494 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $73 million in SBH’s case. Supernus Pharmaceuticals Inc (NASDAQ:SUPN) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 8 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on SBH as the stock returned 62.7% since Q1 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.