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Hedge Funds Were Selling Best Buy Co., Inc. (BBY) Even Before Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Best Buy Co., Inc. (NYSE:BBY).

Is Best Buy Co., Inc. (NYSE:BBY) a buy right now? The smart money is getting less optimistic. The number of long hedge fund positions were cut by 3 lately. Our calculations also showed that BBY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a lot of gauges stock market investors have at their disposal to analyze publicly traded companies. A couple of the most useful gauges are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the top money managers can outclass their index-focused peers by a healthy margin (see the details here).

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when 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 peek at the new hedge fund action encompassing Best Buy Co., Inc. (NYSE:BBY).

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

At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BBY over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Best Buy Co., Inc. (NYSE:BBY), which was worth $264.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $146.7 million worth of shares. Two Sigma Advisors, Alyeska Investment Group, and GLG Partners 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 L2 Asset Management allocated the biggest weight to Best Buy Co., Inc. (NYSE:BBY), around 1.45% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, dishing out 0.7 percent of its 13F equity portfolio to BBY.

Since Best Buy Co., Inc. (NYSE:BBY) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their positions entirely heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $12.9 million in stock. David Keidan’s fund, Buckingham Capital Management, also dropped its stock, about $7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Best Buy Co., Inc. (NYSE:BBY). We will take a look at Palo Alto Networks Inc (NYSE:PANW), Verisign, Inc. (NASDAQ:VRSN), Liberty Broadband Corp (NASDAQ:LBRDA), and Fox Corporation (NASDAQ:FOX). This group of stocks’ market caps are closest to BBY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PANW 47 3168440 -5
VRSN 38 5872682 6
LBRDA 24 821139 0
FOX 27 935717 -2
Average 34 2699495 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $2699 million. That figure was $686 million in BBY’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Liberty Broadband Corp (NASDAQ:LBRDA) is the least popular one with only 24 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately BBY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BBY investors were disappointed as the stock returned -25.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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