J.C. Penney Company, Inc. (JCP): Hedge Funds Saw This Coming

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards J.C. Penney Company, Inc. (NYSE:JCP) and determine whether hedge funds skillfully traded this stock.

J.C. Penney Company, Inc. (NYSE:JCP) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that JCP 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.

To the average investor there are plenty of metrics shareholders put to use to grade their stock investments. A couple of the most innovative metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top fund managers can trounce their index-focused peers by a superb margin (see the details here).

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the fresh hedge fund action encompassing J.C. Penney Company, Inc. (NYSE:JCP).

What does smart money think about J.C. Penney Company, Inc. (NYSE:JCP)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in JCP a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Harbor Spring Capital was the largest shareholder of J.C. Penney Company, Inc. (NYSE:JCP), with a stake worth $3 million reported as of the end of September. Trailing Harbor Spring Capital was Renaissance Technologies, which amassed a stake valued at $2 million. D E Shaw, Redwood Capital Management, and Nut Tree Capital 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 Harbor Spring Capital allocated the biggest weight to J.C. Penney Company, Inc. (NYSE:JCP), around 0.37% of its 13F portfolio. Nut Tree Capital is also relatively very bullish on the stock, setting aside 0.24 percent of its 13F equity portfolio to JCP.

Judging by the fact that J.C. Penney Company, Inc. (NYSE:JCP) has witnessed declining sentiment from the smart money, it’s easy to see that there was a specific group of money managers that elected to cut their entire stakes by the end of the first quarter. At the top of the heap, Philippe Laffont’s Coatue Management cut the largest investment of all the hedgies monitored by Insider Monkey, valued at about $3.8 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as J.C. Penney Company, Inc. (NYSE:JCP) but similarly valued. These stocks are LogicBio Therapeutics, Inc. (NASDAQ:LOGC), Mustang Bio, Inc. (NASDAQ:MBIO), Safeguard Scientifics, Inc (NYSE:SFE), and Lydall, Inc. (NYSE:LDL). This group of stocks’ market valuations match JCP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOGC 4 42883 -1
MBIO 9 6461 1
SFE 11 10703 -2
LDL 14 12698 3
Average 9.5 18186 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $8 million in JCP’s case. Lydall, Inc. (NYSE:LDL) is the most popular stock in this table. On the other hand LogicBio Therapeutics, Inc. (NASDAQ:LOGC) is the least popular one with only 4 bullish hedge fund positions. J.C. Penney Company, Inc. (NYSE:JCP) 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. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately JCP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on JCP were disappointed as the stock returned -7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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