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 Stamps.com Inc. (NASDAQ:STMP) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Stamps.com Inc. (NASDAQ:STMP) was in 29 hedge funds’ portfolios at the end of March. STMP has experienced an increase in support from the world’s most elite money managers in recent months. There were 20 hedge funds in our database with STMP holdings at the end of the previous quarter. Our calculations also showed that STMP 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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. With all of this in mind let’s view the key hedge fund action surrounding Stamps.com Inc. (NASDAQ:STMP).
What have hedge funds been doing with Stamps.com Inc. (NASDAQ:STMP)?
Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STMP over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Stamps.com Inc. (NASDAQ:STMP) was held by D E Shaw, which reported holding $148.1 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $124.4 million position. Other investors bullish on the company included Arrowstreet Capital, No Street Capital, and Simcoe Capital Management. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to Stamps.com Inc. (NASDAQ:STMP), around 9.18% of its 13F portfolio. Calixto Global Investors is also relatively very bullish on the stock, designating 8.43 percent of its 13F equity portfolio to STMP.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. No Street Capital, managed by Jeff Osher, assembled the most outsized position in Stamps.com Inc. (NASDAQ:STMP). No Street Capital had $41 million invested in the company at the end of the quarter. Eduardo Costa’s Calixto Global Investors also made a $8.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Brian C. Freckmann’s Lyon Street Capital, and Jinghua Yan’s TwinBeech Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Stamps.com Inc. (NASDAQ:STMP) but similarly valued. These stocks are American National Insurance Company (NASDAQ:ANAT), Laureate Education, Inc. (NASDAQ:LAUR), Macquarie Infrastructure Corporation (NYSE:MIC), and LivaNova PLC (NASDAQ:LIVN). This group of stocks’ market values are similar to STMP’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $466 million in STMP’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand American National Insurance Company (NASDAQ:ANAT) is the least popular one with only 14 bullish hedge fund positions. Stamps.com Inc. (NASDAQ:STMP) 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 STMP as the stock returned 41.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.