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Hedge Funds Clearly Dropped The Ball On Best Buy Co., Inc. (BBY)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

Is Best Buy Co., Inc. (NYSE:BBY) undervalued? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 4 recently. Our calculations also showed that BBY isn’t among the 30 most popular stocks among hedge funds. BBY was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 27 hedge funds in our database with BBY holdings at the end of the previous quarter. Overall hedge fund sentiment towards BBY is at its lowest level since at least 2015.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

We’re going to analyze the fresh hedge fund action surrounding Best Buy Co., Inc. (NYSE:BBY).

What does the smart money think about Best Buy Co., Inc. (NYSE:BBY)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BBY over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BBY_mar2019

More specifically, AQR Capital Management was the largest shareholder of Best Buy Co., Inc. (NYSE:BBY), with a stake worth $288.8 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $74.3 million. Two Sigma Advisors, D E Shaw, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Best Buy Co., Inc. (NYSE:BBY) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest stake of the 700 funds tracked by Insider Monkey, totaling about $44.8 million in stock. James Parsons’s fund, Junto Capital Management, also cut its stock, about $29.5 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Best Buy Co., Inc. (NYSE:BBY) but similarly valued. We will take a look at Fortis Inc. (NYSE:FTS), Mettler-Toledo International Inc. (NYSE:MTD), CenterPoint Energy, Inc. (NYSE:CNP), and Mylan N.V. (NASDAQ:MYL). All of these stocks’ market caps resemble BBY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTS 14 253251 0
MTD 22 241720 6
CNP 33 1425407 -5
MYL 42 2228564 3
Average 27.75 1037236 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1037 million. That figure was $631 million in BBY’s case. Mylan N.V. (NASDAQ:MYL) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 14 bullish hedge fund positions. Best Buy Co., Inc. (NYSE:BBY) is not the least popular stock in this group but hedge fund interest is still below average. Hedge funds have been getting out of BBY since the second quarter of 2017. These hedge funds clearly dropped the ball on BBY as the stock performed really well in 2019. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Only a few hedge funds were also right about betting on BBY as the stock returned 31.5% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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