Hedge Fund Darlings vs. BJ’s Wholesale Club Holdings, Inc. (BJ) In 2019

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ)?

BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) has experienced a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that BJ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s analyze the key hedge fund action surrounding BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ).

Hedge fund activity in BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ)

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in BJ a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) was held by Sirios Capital Management, which reported holding $80.6 million worth of stock at the end of September. It was followed by Simcoe Capital Management with a $32.3 million position. Other investors bullish on the company included Millennium Management, Locust Wood Capital Advisers, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), around 8.31% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, dishing out 5.31 percent of its 13F equity portfolio to BJ.

Due to the fact that BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) has experienced a decline in interest from hedge fund managers, logic holds that there is a sect of hedgies that slashed their entire stakes heading into Q4. Interestingly, Shane Finemore’s Manikay Partners cut the largest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $13.2 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund cut about $11.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 10 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ). We will take a look at Graham Holdings Co (NYSE:GHC), Clearway Energy, Inc. (NYSE:CWEN), Bank OZK (NASDAQ:OZK), and Glacier Bancorp, Inc. (NASDAQ:GBCI). All of these stocks’ market caps match BJ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GHC 17 551698 2
CWEN 20 182276 1
OZK 19 282599 -2
GBCI 13 47527 -4
Average 17.25 266025 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $276 million in BJ’s case. Clearway Energy, Inc. (NYSE:CWEN) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BJ were disappointed as the stock returned 2.6% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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