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Hedge Funds Are Buying Genesco Inc. (GCO)

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Even though Genesco Inc. (NYSE:GCO) stock has been on a downward trajectory since the beginning of the year, it has registered a slight increase in hedge fund interest during the third quarter and it was in 12 hedge funds’ portfolios at the end of September. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Himax Technologies, Inc. (ADR) (NASDAQ:HIMX), CoreSite Realty Corp (NYSE:COR), and Dreamworks Animation Skg Inc (NASDAQ:DWA) to gather more data points.

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In the financial world there are several formulas investors use to assess their holdings. A pair of the most under-the-radar formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the broader indices by a healthy amount (see the details here).

Now, let’s take a look at the new action regarding Genesco Inc. (NYSE:GCO).

How have hedgies been trading Genesco Inc. (NYSE:GCO)?

Heading into Q4, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 9% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Genesco Inc. (NYSE:GCO), worth close to $87 million, amounting to 0.5% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, led by Jim Simons, holding a $7.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Joel Greenblatt’s Gotham Asset Management, Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw.

As industrywide interest jumped, key money managers were breaking ground themselves. D E Shaw established the largest position in Genesco Inc. (NYSE:GCO). D E Shaw had $1.8 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Chao Ku’s Nine Chapters Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and David Dreman’s Dreman Value Management.

Let’s check out hedge fund activity in other stocks similar to Genesco Inc. (NYSE:GCO). These stocks are Himax Technologies, Inc. (ADR) (NASDAQ:HIMX), CoreSite Realty Corp (NYSE:COR), Dreamworks Animation Skg Inc (NASDAQ:DWA), and Penn National Gaming, Inc (NASDAQ:PENN). This group of stocks’ market values are similar to GCO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HIMX 11 85966 -5
COR 10 92476 1
DWA 9 493527 1
PENN 35 472397 6

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $286 million. That figure was $106 million in GCO’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand, Dreamworks Animation Skg Inc (NASDAQ:DWA) is the least popular one with only 9 bullish hedge fund positions. Genesco Inc. (NYSE:GCO) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PENN might be a better candidate to consider a long position.

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