There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) .
Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. SHOS was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. There were 13 hedge funds in our database with SHOS positions at the end of the previous quarter. At the end of this article we will also compare SHOS to other stocks including Exeter Resource Corp. (NYSEAMEX:XRA), BRT Realty Trust (NYSE:BRT), and Mattersight Corporation (NASDAQ:MATR) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Now, let’s check out the recent action surrounding Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS).
Hedge fund activity in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS)
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHOS over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, ESL Investments, led by Edward Lampert, holds the largest position in Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS). ESL Investments has a $23.5 million position in the stock, comprising 2.7% of its 13F portfolio. Sitting at the No. 2 spot is Chou Associates Management, led by Francis Chou, holding a $6.5 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Murray Stahl’s Horizon Asset Management, Bruce Berkowitz’s Fairholme (FAIRX) and John Petry’s Sessa Capital. We should note that Sessa Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $0.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $0.1 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) but similarly valued. We will take a look at Exeter Resource Corp. (NYSEAMEX:XRA), BRT Realty Trust (NYSE:BRT), Mattersight Corporation (NASDAQ:MATR), and A-Mark Precious Metals Inc (NASDAQ:AMRK). This group of stocks’ market valuations match SHOS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $45 million in SHOS’s case. Exeter Resource Corp. (NYSEAMEX:XRA) is the most popular stock in this table. On the other hand Exeter Resource Corp. (NYSEAMEX:XRA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) is more popular among hedge funds. 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 detail and potentially include it in your portfolio.