Is Shoe Carnival, Inc. (SCVL) A Good Stock To Buy?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Hedge fund interest in Shoe Carnival, Inc. (NASDAQ:SCVL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SCVL to other stocks including Western Asset Emerging Mrkts Dbt Fnd Inc (NYSE:ESD), Bridge Bancorp, Inc. (NASDAQ:BDGE), and OceanFirst Financial Corp. (NASDAQ:OCFC) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, let’s analyze the key action surrounding Shoe Carnival, Inc. (NASDAQ:SCVL).

What have hedge funds been doing with Shoe Carnival, Inc. (NASDAQ:SCVL)?

At Q3’s end, a total of 8 (just slightly over 1% of the funds that we track) of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SCVL over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the number one position in Shoe Carnival, Inc. (NASDAQ:SCVL). Royce & Associates has a $61.4 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $2.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions comprise John Overdeck and David Siegel’s Two Sigma Advisors, Constantinos J. Christofilis’s Archon Capital Management and Renaissance Technologies, one of the largest hedge funds in the world. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Shoe Carnival, Inc. (NASDAQ:SCVL) has faced a lull in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest position of the “upper crust” of funds studied by Insider Monkey, totaling close to $2 million in stock. D E Shaw, also said goodbye to its stock, about $0.7 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Shoe Carnival, Inc. (NASDAQ:SCVL) but similarly valued. These stocks are Western Asset Emerging Mrkts Dbt Fnd Inc (NYSE:ESD), Bridge Bancorp, Inc. (NASDAQ:BDGE), OceanFirst Financial Corp. (NASDAQ:OCFC), and Universal American Corporation (NYSE:UAM). This group of stocks’ market valuations resemble SCVL’s market valuation.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $67 million in SCVL’s case. OceanFirst Financial Corp. (NASDAQ:OCFC) is the most popular stock in this table. On the other hand Western Asset Emerging Mrkts Dbt Fnd Inc (NYSE:ESD) is the least popular one with only 5 bullish hedge fund positions. Shoe Carnival, Inc. (NASDAQ:SCVL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OCFC might be a better candidate to consider taking a long position in.

Disclosure: None