Heartland Advisors, an investment management firm, published its “Heartland Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, Heartland mentioned that the fund was up double digits for the first half of the year, and its 10 Principles of Value Investing™ continues to lead them to well-managed businesses that are financially strong. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Heartland Advisors, the fund mentioned Bed Bath & Beyond Inc. (NASDAQ: BBBY) and discussed its stance on the firm. Bed Bath & Beyond Inc. is a Union, New Jersey-based retail-store company with a $2.7 billion market capitalization. BBBY delivered a 50.01% return since the beginning of the year, while its 12-month returns are up by 118.38%. The stock closed at $26.54 per share on August 17, 2021.
Here is what Heartland Advisors has to say about Bed Bath & Beyond Inc. in its Q2 2021 investor letter:
“The gyrations of story stocks touted on message boards have resulted in distortions in the market but on rare occasions have also swept up a few compelling opportunities. Bed Bath & Beyond (BBBY), a national retailer of home goods, babywear and health and beauty products, is one example.
Even before Bed Bath & Beyond made headlines earlier this year when day traders drove the price of shares up in an effort to squeeze short sellers, the company had caught our attention for the results its new management team was delivering since taking over in late 2019.
CEO Mark Tritton, who came to BBBY after a successful tenure at Target, quickly got to work installing new corporate leadership, closing underperforming stores, selling non-core businesses to firm up the balance sheet, and implementing retail best practices across the company. He also worked to improve store efficiency and revamped the company’s online presence.
The moves by Tritton made an impact. In its 2020 fiscal year, BBBY closed 144 under-performing stores, grew new digital customers by 95%, reduced debt by $1 billion, and returned $375 million of capital to shareholders. Despite the meaningful improvements, and the strong performance year-to-date, shares of the retailer are trading at just .35X sales and less than 5X estimated 2022 earnings before interest, taxes, depreciation, and amortization—roughly half of the multiple commanded by peer Williams- Sonoma Inc.
At current valuations, we view BBBY as offering attractive upside as recent improvements gain traction. It appears we’re not alone as executives have also been buying shares in recent months.”
Based on our calculations, Bed Bath & Beyond Inc. (NASDAQ: BBBY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. BBBY was in 21 hedge fund portfolios at the end of the 1st half of 2021, compared to 23 funds in the previous quarter. Bed Bath & Beyond Inc. (NASDAQ: BBBY) delivered a 7.87% return in the past 3 months.
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.
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Disclosure: None. This article is originally published at Insider Monkey.