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 Michaels Companies Inc (NASDAQ:MIK) and determine whether hedge funds had an edge regarding this stock.
Michaels Companies Inc (NASDAQ:MIK) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 32. MIK investors should be aware of a decrease in support from the world’s most elite money managers recently. There were 22 hedge funds in our database with MIK holdings at the end of March. Our calculations also showed that MIK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. 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. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a glance at the key hedge fund action encompassing Michaels Companies Inc (NASDAQ:MIK).
What have hedge funds been doing with Michaels Companies Inc (NASDAQ:MIK)?
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in MIK a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Contrarius Investment Management, managed by Stephen Mildenhall, holds the largest position in Michaels Companies Inc (NASDAQ:MIK). Contrarius Investment Management has a $72.1 million position in the stock, comprising 6.8% of its 13F portfolio. Sitting at the No. 2 spot is Glenview Capital, led by Larry Robbins, holding a $24.8 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include D. E. Shaw’s D E Shaw, David Harding’s Winton Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to Michaels Companies Inc (NASDAQ:MIK), around 6.81% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, designating 2.34 percent of its 13F equity portfolio to MIK.
Since Michaels Companies Inc (NASDAQ:MIK) has faced bearish sentiment from the smart money, it’s easy to see that there exists a select few money managers that slashed their full holdings last quarter. Intriguingly, Michael Burry’s Scion Asset Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, comprising about $5.3 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $2.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Michaels Companies Inc (NASDAQ:MIK). We will take a look at U.S. Physical Therapy, Inc. (NYSE:USPH), ForeScout Technologies, Inc. (NASDAQ:FSCT), Dril-Quip, Inc. (NYSE:DRQ), TriMas Corp (NASDAQ:TRS), Tronox Holdings Plc (NYSE:TROX), Universal Corp (NYSE:UVV), and Amphastar Pharmaceuticals Inc (NASDAQ:AMPH). This group of stocks’ market valuations resemble MIK’s market valuation.
|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 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $133 million in MIK’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand U.S. Physical Therapy, Inc. (NYSE:USPH) is the least popular one with only 9 bullish hedge fund positions. Michaels Companies Inc (NASDAQ:MIK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MIK is 47.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on MIK as the stock returned 36.6% during Q3 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.