Hedge Fund Sentiment Has This to Say About These 3 Bullish Moves

Most individual investors aspire to invest like well-known and successful hedge fund managers, but these investment vehicles have slightly underperformed the broader market since 2009. However, one should not blame hedge funds for their “disappointing” performance, as it is quite hard to outperform the extreme bull market we have experienced over the past several years when you are hedged. In fact, hedge funds are known for their consistent risk-adjusted returns, which have beaten the overall stock market in the past 15 years, so they do have strong stock picking abilities.  For that reason, the following article will examine three freshly-submitted filings made by several widely-known hedge funds monitored by the Insider Monkey team.

Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning 102% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.

In a Schedule 13D filing, Cannell Capital LLC, founded by J. Carlo Cannell, reported owning 1.34 million shares of Build-A-Bear Workshop Inc. (NYSE:BBW), representing 8.18% of the company’s outstanding common stock. This compares with the 849,129-share position revealed by Cannell Capital through the latest round of 13Fs. The 13D filing also reveals that Carlo Cannell and his team intend to hold the aforementioned stake as a long-term investment. On November 17, Cannell Capital’s founder proposed that Build-A-Bear Workshop Inc. (NYSE:BBW)’s Chairwoman Mary Lou Fiala should appoint Charles M. Gillman and other candidates to the company’s Board, and tender a minimum $40 million worth of shares in a modified “Dutch Auction” tender, with prices between $12 and $13 per share, or a single tender price of $12.50 per share. The specialty retailer of plush animals and related products has seen its shares decline by 35% since the beginning of the year, with them currently trading at a cheap trailing price-to-earnings ratio of 11.54 (the ratio for the S&P 500 stands at 23.12). Thus, it appears that Carlo Cannell does believe that the stock is significantly undervalued by the market, which is the reason why he proposed the “Dutch Auction”.

The smart money sentiment towards the stock did not change significantly during the September quarter, as the number of hedge funds tracked by our team with long positions in it declined to 15 from 16 quarter-over-quarter. These hedge fund investors amassed nearly 17% of the company’s outstanding shares on September 30. Renaissance Technologies was another hedge fund bullish on Build-A-Bear Workshop Inc. (NYSE:BBW) at the end of the third quarter, holding 576,400 shares.

Let’s now move on to the next page, which discloses the recent moves made by Glenhill Advisors and Elliott Management.

According to a freshly-amended 13G filing, Glenn J. Krevlin’s Glenhill Advisors owns a 2.38 million-share position in Joint Corp (NASDAQ:JYNT), up by 1.12 million shares since the end of the third quarter. The enlarged stake represents 19.5% of Joint’s outstanding shares. The company owns, operates and manages chiropractic clinics through direct ownership, management arrangements, franchising and the sales of regional developer rights. Thus, its growth strategy involves acquiring and developing clinics that will be directly owned by the company, but also selling additional franchises. Just recently, the company offered 2.27 million shares to the public through an underwritten public offering at a price of $5.50 per share. Joint Corp (NASDAQ:JYNT) anticipates that it will repurchase or develop up to 42 franchises or clinics in 2015, so it appears that the company raised additional capital so as to implement its growth plans. Meanwhile, shares of Joint are 10% in the red year-to-date even though the stock had gained as much as 95% for the year through mid-June.

Only two hedge funds monitored by our team owned stakes in the company at the end of the third quarter, accumulating 14.80% of its common stock. Charles Paquelet’s Skylands Capital owns 195,281 shares of Joint Corp (NASDAQ:JYNT) as of the end of September.

As stated by several Form 4 filings submitted with the SEC, Paul Singer’s Elliott Management purchased 51,000 shares of Citrix Systems Inc. (NASDAQ:CTXS) on Friday and 17,000 shares on Monday, at prices between $74.60 and $75.77 per share, boosting its overall holding to 2.24 million shares. At the beginning of the year, the cloud computing software maker announced a restructuring program aimed at increasing its strategic focus and operational efficiency, which resulted in a workforce reduction of 700 full-time positions in the first half of the year. On July 29, Citrix Systems Inc. (NASDAQ:CTXS) also announced its intentions to its review strategic alternatives in connection to its ByteMobile business and its GoTo family of products, after receiving pressure from Singer. Just recently, the company announced the spin-off of its GoTo family of products and a workforce reduction of 1,000 jobs, so it appears that the activist investor’s pressure has started to bear fruit. In the meantime, the stock has advanced by 19% since the beginning of the year and is trading at a rather rich trailing P/E ratio of 43.93. However, this ratio ignores the earnings potential of the company and the potential impact of the increasing strategic focus and operational efficiency.

The number of hedge funds invested in Citrix decreased to 38 from 39 during the third quarter, while the value of their stakes grew to $1.44 billion from $1.03 billion quarter-over-quarter. These smart money investors owned nearly 13% of the company’s shares on September 30. Peter Adam Hochfelder’s Brahman Capital acquired a 1.76 million-share stake in Citrix Systems Inc. (NASDAQ:CTXS) during the September quarter.

Disclosure: None