At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sally Beauty Holdings, Inc. (NYSE:SBH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Sally Beauty Holdings, Inc. (NYSE:SBH) worth your attention right now? Investors who are in the know were becoming hopeful. The number of bullish hedge fund positions advanced by 7 recently. Sally Beauty Holdings, Inc. (NYSE:SBH) was in 26 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that SBH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the eyes of most traders, hedge funds are perceived as underperforming, outdated investment vehicles of the past. While there are more than 8000 funds in operation at present, Our researchers choose to focus on the moguls of this club, around 850 funds. Most estimates calculate that this group of people control most of the hedge fund industry’s total asset base, and by keeping track of their first-class stock picks, Insider Monkey has uncovered a few investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a gander at the new hedge fund action encompassing Sally Beauty Holdings, Inc. (NYSE:SBH).
What does smart money think about Sally Beauty Holdings, Inc. (NYSE:SBH)?
At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SBH over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Sally Beauty Holdings, Inc. (NYSE:SBH) was held by AQR Capital Management, which reported holding $45.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $28.5 million position. Other investors bullish on the company included Prentice Capital Management, Balyasny Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Sally Beauty Holdings, Inc. (NYSE:SBH), around 5.43% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to SBH.
With a general bullishness amongst the heavyweights, key money managers have jumped into Sally Beauty Holdings, Inc. (NYSE:SBH) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Sally Beauty Holdings, Inc. (NYSE:SBH). Marshall Wace LLP had $7.2 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also initiated a $5.7 million position during the quarter. The other funds with new positions in the stock are Ira Unschuld’s Brant Point Investment Management, Parvinder Thiara’s Athanor Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sally Beauty Holdings, Inc. (NYSE:SBH) but similarly valued. We will take a look at Glu Mobile Inc. (NASDAQ:GLUU), O-I Glass, Inc. (NYSE:OI), Sapiens International Corporation N.V. (NASDAQ:SPNS), Cytokinetics, Inc. (NASDAQ:CYTK), Avanos Medical, Inc. (NYSE:AVNS), Aurora Cannabis Inc. (NYSE:ACB), and Silk Road Medical, Inc. (NASDAQ:SILK). This group of stocks’ market values are similar to SBH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $166 million in SBH’s case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 6 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SBH is 72.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately SBH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SBH were disappointed as the stock returned -27.1% 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.
Disclosure: None. This article was originally published at Insider Monkey.