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Is Barnes & Noble, Inc. (BKS) Going to Burn These Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ recent losses in Facebook. Let’s take a closer look at what the funds we track think about Barnes & Noble, Inc. (NYSE:BKS) in this article.

Barnes & Noble, Inc. (NYSE:BKS) was in 16 hedge funds’ portfolios at the end of September. BKS investors should pay attention to an increase in enthusiasm from smart money lately. There were 12 hedge funds in our database with BKS holdings at the end of the previous quarter. Our calculations also showed that BKS isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Let’s analyze the recent hedge fund action surrounding Barnes & Noble, Inc. (NYSE:BKS).

How are hedge funds trading Barnes & Noble, Inc. (NYSE:BKS)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in BKS heading into this year. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

BKS_dec2018

The largest stake in Barnes & Noble, Inc. (NYSE:BKS) was held by Royce & Associates, which reported holding $3.2 million worth of stock at the end of September. It was followed by Highland Capital Management with a $3.1 million position. Other investors bullish on the company included SG Capital Management, PEAK6 Capital Management, and Two Sigma Advisors.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the most valuable position in Barnes & Noble, Inc. (NYSE:BKS). SG Capital Management had $3 million invested in the company at the end of the quarter. Philippe Laffont’s Coatue Management also initiated a $0.4 million position during the quarter. The other funds with brand new BKS positions are Mike Vranos’s Ellington, Bradley LouisáRadoff’s Fondren Management, and John A. Levin’s Levin Capital Strategies.

Let’s also examine hedge fund activity in other stocks similar to Barnes & Noble, Inc. (NYSE:BKS). We will take a look at Farmers National Banc Corp (NASDAQ:FMNB), Nautilus, Inc. (NYSE:NLS), Pimco Income Opportunity Fund (NYSE:PKO), and Platinum Eagle Acquisition Corp. Units (NASDAQ:EAGLU). This group of stocks’ market values are similar to BKS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMNB 6 13054 1
NLS 16 53191 1
PKO 1 3176 -1
EAGLU 18 142362 1
Average 10.25 52946 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $17 million in BKS’s case. Platinum Eagle Acquisition Corp. Units (NASDAQ:EAGLU) is the most popular stock in this table. On the other hand Pimco Income Opportunity Fund (NYSE:PKO) is the least popular one with only 1 bullish hedge fund positions. Barnes & Noble, Inc. (NYSE:BKS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EAGLU might be a better candidate to consider a long position.

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

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