Is BG Staffing Inc (BGSF) A Good Stock To Buy?

In this article you are going to find out whether hedge funds think BG Staffing Inc (NYSE:BGSF) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

BG Staffing Inc (NYSE:BGSF) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that BGSF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the key hedge fund action encompassing BG Staffing Inc (NYSE:BGSF).

How are hedge funds trading BG Staffing Inc (NYSE:BGSF)?

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in BGSF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BGSF A Good Stock To Buy?

Among these funds, Polaris Capital Management held the most valuable stake in BG Staffing Inc (NYSE:BGSF), which was worth $1.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.9 million worth of shares. Arrowstreet Capital, Winton Capital Management, and Citadel Investment Group 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 Polaris Capital Management allocated the biggest weight to BG Staffing Inc (NYSE:BGSF), around 0.07% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to BGSF.

Due to the fact that BG Staffing Inc (NYSE:BGSF) has faced bearish sentiment from the smart money, logic holds that there was a specific group of hedgies that decided to sell off their full holdings in the first quarter. Interestingly, Cliff Asness’s AQR Capital Management dropped the biggest investment of the 750 funds tracked by Insider Monkey, worth close to $2.1 million in stock, and Louis Navellier’s Navellier & Associates was right behind this move, as the fund dropped about $1.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to BG Staffing Inc (NYSE:BGSF). These stocks are Orion Marine Group, Inc. (NYSE:ORN), Globe Specialty Metals, Inc. (NASDAQ:GSM), Park City Group, Inc. (NYSE:PCYG), and Briggs & Stratton Corporation (NYSE:BGG). This group of stocks’ market values match BGSF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORN 7 5908 -6
GSM 11 10265 4
PCYG 2 483 -1
BGG 4 5425 -4
Average 6 5520 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in BGSF’s case. Globe Specialty Metals, Inc. (NASDAQ:GSM) is the most popular stock in this table. On the other hand Park City Group, Inc. (NYSE:PCYG) is the least popular one with only 2 bullish hedge fund positions. BG Staffing Inc (NYSE:BGSF) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on BGSF as the stock returned 60.7% during the second quarter and outperformed the market by an even larger margin.

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