Hedge Funds Are Coming Back To Sleep Number Corporation (SNBR)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Sleep Number Corporation (NASDAQ:SNBR).

Is Sleep Number Corporation (NASDAQ:SNBR) a good stock to buy now? The smart money was taking a bullish view. The number of bullish hedge fund positions increased by 5 lately. Sleep Number Corporation (NASDAQ:SNBR) was in 21 hedge funds’ portfolios at the end of March. The all time high for this statistic is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SNBR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 16 hedge funds in our database with SNBR holdings at the end of December.

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 115 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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Sleep Number Corporation (NASDAQ:SNBR).

Do Hedge Funds Think SNBR Is A Good Stock To Buy Now?

At the end of March, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNBR over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SNBR A Good Stock To Buy?

The largest stake in Sleep Number Corporation (NASDAQ:SNBR) was held by Arrowstreet Capital, which reported holding $91.2 million worth of stock at the end of December. It was followed by D E Shaw with a $53.4 million position. Other investors bullish on the company included Giverny Capital, Renaissance Technologies, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Sleep Number Corporation (NASDAQ:SNBR), around 3.26% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, designating 1.32 percent of its 13F equity portfolio to SNBR.

Consequently, some big names have been driving this bullishness. Aubrey Capital Management, managed by Andrew Dalrymple and Barry McCorkell, established the largest position in Sleep Number Corporation (NASDAQ:SNBR). Aubrey Capital Management had $4.7 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Jinghua Yan’s TwinBeech Capital, and Peter Algert’s Algert Global.

Let’s check out hedge fund activity in other stocks similar to Sleep Number Corporation (NASDAQ:SNBR). We will take a look at Urban Outfitters, Inc. (NASDAQ:URBN), Investors Bancorp, Inc. (NASDAQ:ISBC), Beacon Roofing Supply, Inc. (NASDAQ:BECN), Cannae Holdings, Inc. (NYSE:CNNE), BRF SA (NYSE:BRFS), Cushman & Wakefield plc (NYSE:CWK), and Spectrum Brands Holdings, Inc. (NYSE:SPB). All of these stocks’ market caps are similar to SNBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
URBN 23 140764 -1
ISBC 12 78620 -12
BECN 21 411376 -2
CNNE 36 672726 2
BRFS 8 47746 -3
CWK 19 157185 4
SPB 37 618156 2
Average 22.3 303796 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $257 million in SNBR’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand BRF SA (NYSE:BRFS) is the least popular one with only 8 bullish hedge fund positions. Sleep Number Corporation (NASDAQ:SNBR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SNBR is 62.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately SNBR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SNBR investors were disappointed as the stock returned -24.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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