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Hedge Funds Are Done Buying Box, Inc. (BOX)?

In this article you are going to find out whether hedge funds think Box, Inc. (NYSE:BOX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Box, Inc. (NYSE:BOX) going to take off soon? Money managers are turning less bullish. The number of bullish hedge fund positions shrunk by 1 in recent months. Our calculations also showed that BOX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). BOX was in 34 hedge funds’ portfolios at the end of the first quarter of 2020. There were 35 hedge funds in our database with BOX positions at the end of the previous quarter.

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 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 51 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.

Jeff Smith

Jeffrey Smith of Starboard Value LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action regarding Box, Inc. (NYSE:BOX).

How have hedgies been trading Box, Inc. (NYSE:BOX)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BOX over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Starboard Value LP held the most valuable stake in Box, Inc. (NYSE:BOX), which was worth $163.9 million at the end of the third quarter. On the second spot was RGM Capital which amassed $87.3 million worth of shares. Bares Capital Management, Two Sigma Advisors, and Wallace R. Weitz & Co. were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to Box, Inc. (NYSE:BOX), around 6.86% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, setting aside 6.65 percent of its 13F equity portfolio to BOX.

Seeing as Box, Inc. (NYSE:BOX) has faced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of funds that elected to cut their full holdings heading into Q4. Intriguingly, Ryan Frick and Oliver Evans’s Dorsal Capital Management dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $33.1 million in stock, and Phillip Goldstein, Andrew Dakos and Steven Samuels’s Bulldog Investors was right behind this move, as the fund dropped about $3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Box, Inc. (NYSE:BOX) but similarly valued. These stocks are Cal-Maine Foods Inc (NASDAQ:CALM), PacWest Bancorp (NASDAQ:PACW), Element Solutions Inc. (NYSE:ESI), and PotlatchDeltic Corporation (NASDAQ:PCH). This group of stocks’ market values are closest to BOX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CALM 26 219068 11
PACW 23 121550 -8
ESI 35 387209 -2
PCH 16 234507 0
Average 25 240584 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $487 million in BOX’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 16 bullish hedge fund positions. Box, Inc. (NYSE:BOX) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on BOX as the stock returned 42.3% in Q2 (through the end of May) 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.