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How to Trade Big Lots, Inc. (BIG) Following Earnings Results

Following the release of its financial results, Big Lots, Inc. (NYSE:BIG)‘s opened 5% in the red and has since slightly recovered, although it is still trading more than 2% lower. The company managed to narrow its net loss to $0.03 per share in the third fiscal quarter, ended October 31, from $0.06 reported a year earlier. Excluding a special $0.02 per share expense related to the termination of a legacy pension plan, Big Lots’ net loss amounted to just $0.01 per share, which is still below the analyst estimates of a flat profit for the quarter. The revenue inched up by an annual 0.08% to $1.12 billion and was in line with the Street’s expectations. Comparable store sales went up by 2.6% in the quarter, in line with the company’s previous guidance of 2% to 3%.

For the current quarter, Big Lots, Inc. (NYSE:BIG), which operates a chain of discount stores, expects an adjusted net income between $1.95 and $2.00 per share, which translates to an increase of 11% to 14% on the year. For the full fiscal 2015, the adjusted EPS are forecasted in the range of $2.95 to $3.00, which represent an increase of 20% to 22%.

Since many investors can sometimes overlook the long-term potential of a stock and focus on short-term events, such as financial results, it’s important to assess what smart money investors think about a particular company, since they usually see the big picture and invest in a stock based on its fundamentals. Interestingly, Big Lots, Inc. (NYSE:BIG) registered a decline in interest from the funds we track at Insider Monkey, as you will see later on in this article.

If you’d ask most shareholders, hedge funds are assumed to be underperforming, old financial vehicles of yesteryear. While there are over 8000 funds in operation today, We choose to focus on the aristocrats of this group, about 700 funds. Most estimates calculate that this group of people preside over the lion’s share of the smart money’s total capital, and by tracking their first-class investments, Insider Monkey has deciphered various investment strategies that have historically outperformed the market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, let’s go over the recent action regarding Big Lots, Inc. (NYSE:BIG).

How have hedgies been trading Big Lots, Inc. (NYSE:BIG)?

Heading into Q4, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 25% from one quarter earlier. The aggregate value of these funds’ stakes, however, went up to $254.50 million from $236.03 million and represented nearly 11% of Big Lots, Inc. (NYSE:BIG)’s outstanding stock.

Among the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Big Lots, Inc. (NYSE:BIG), which was valued at $68.5 million at the end of September. On Citadel Investment Group’s heels is AQR Capital Management, led by Cliff Asness, holding a $67.4 million position. Some other professional money managers that hold long positions encompass Joel Greenblatt’s Gotham Asset Management, Jim Simons’ Renaissance Technologies and Peter Muller’s PDT Partners.

Judging by the fact that Big Lots, Inc. (NYSE:BIG) registered a decline in the interest among the funds we track, it’s important to point out that several investors closed substantial positions in the company during the third quarter. More specifically, John Tompkins’s Tyvor Capital and Glenn Russell Dubin’s Highbridge Capital Management unloaded their entire positions, that were previously worth $14.1 million and $7 million, respectively.

In addition to that, we should review the hedge fund activity in other stocks similar to Big Lots, Inc. (NYSE:BIG) in terms of market capitalization. In particular, we will take a look at CLARCOR Inc. (NYSE:CLC), Prestige Brands Holdings, Inc. (NYSE:PBH), Snyder S Lance Inc (NASDAQ:LNCE), and ONE Gas Inc (NYSE:OGS).

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLC 15 150331 3
PBH 12 176260 -1
LNCE 12 122582 0
OGS 12 50563 3

As you can see these stocks had an average of 13 hedge funds with long positions and the average amount invested in these stocks was $125 million, which is below the same figure in Big Lots’ case. CLARCOR Inc. (NYSE:CLC) is the most popular stock in this table with a total of 15 funds holding shares and Big Lots, Inc. (NYSE:BIG) registers an even higher level of popularity. Therefore, considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in more detail and potentially include it in your portfolio.

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