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Sandell’s Bullish Move On Bob Evans Farms Inc (BOBE), Should You Follow Suit?

In a recent 13 D filing, Tom Sandell‘s Sandell Asset Management disclosed holding about 2.13 million shares of Bob Evans Farms Inc (NASDAQ:BOBE), which includes options to purchase some 380,000 shares. The form was filed after the firm acquired some 500,300 shares through its affiliated funds since its last reported position in the company on March 31. The current stake amasses about 9.6% of the company’s outstanding shares and has been acquired for $84.26 million according to the firm’s filing, which includes transaction fees. The current value of its holding stands at $108.63 million. So far this year, Bob Evans Farms Inc (NASDAQ:BOBE)’s stock is trading nearly sideways, after collapsing by about 22% in early March following the company’s fiscal 2015 third quarter results, which failed to meet expectations, as well as an announcement by its management that it will not be separating its food business.

Thomas Sandell

Smart money is staying put in the company. Among the funds that we track, the number of firms with investments in Bob Evans Farms Inc (NASDAQ:BOBE) remained unchanged at 19 at the end of March, as compared to the start of the quarter, but the aggregate amount invested slid to $274.92 million from $310.22 million at the end of December. Most of the decline can be attributed to the 8.8% depreciation in the company’s stock price during the first quarter.

Tom Sandell
Tom Sandell
Sandell Asset Management

First a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 135% since the launch of our small-cap strategy compared to less than 55% for the S&P 500 (see the details).

Insider trading, especially insider purchases can provide valuable insights into a company’s future prospects from the management’s point of view. Mark Hood, Bob Evans Farms Inc (NASDAQ:BOBE)’s CFO, and Larry McWilliams, the company’s Director bought 2,500 and 2,145 shares respectively this year. On the other hand, Alan Thomas Ashworth, Bob Evans’ Senior Vice President, and Scott Taggart, who is Vice President have disposed of 1,800 and 1,000 shares of Bob Evans respectively during the year.

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