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Should I Buy Bed Bath & Beyond Inc. (BBBY)?

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 Bed Bath & Beyond Inc. (NASDAQ:BBBY) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) investors should pay attention to an increase in enthusiasm from smart money of late. Bed Bath & Beyond Inc. (NASDAQ:BBBY) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. Our calculations also showed that BBBY 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In the eyes of most traders, hedge funds are seen as worthless, outdated investment tools of years past. While there are over 8000 funds trading at present, Our researchers look at the elite of this club, around 850 funds. These hedge fund managers orchestrate bulk of all hedge funds’ total asset base, and by watching their finest investments, Insider Monkey has uncovered several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year 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 .

Frank Brosens Taconic Capital

Frank Brosens of Taconic Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s analyze the fresh hedge fund action surrounding Bed Bath & Beyond Inc. (NASDAQ:BBBY).

How have hedgies been trading Bed Bath & Beyond Inc. (NASDAQ:BBBY)?

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BBBY over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Contrarius Investment Management, managed by Stephen Mildenhall, holds the biggest position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Contrarius Investment Management has a $108.3 million position in the stock, comprising 10.2% of its 13F portfolio. Sitting at the No. 2 spot is Legion Partners Asset Management, led by Ted White and Christopher Kiper, holding a $60.8 million position; 17% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group and James Parsons’s Junto Capital Management. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to Bed Bath & Beyond Inc. (NASDAQ:BBBY), around 17.01% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, designating 10.23 percent of its 13F equity portfolio to BBBY.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Junto Capital Management, managed by James Parsons, assembled the biggest position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Junto Capital Management had $22.7 million invested in the company at the end of the quarter. Michael Burry’s Scion Asset Management also made a $10.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Zimmerman’s Prentice Capital Management, Frank Brosens’s Taconic Capital, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bed Bath & Beyond Inc. (NASDAQ:BBBY) but similarly valued. We will take a look at Weis Markets, Inc. (NYSE:WMK), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), NBT Bancorp Inc. (NASDAQ:NBTB), OSI Systems, Inc. (NASDAQ:OSIS), Industrial Logistics Properties Trust (NASDAQ:ILPT), Black Stone Minerals LP (NYSE:BSM), and Banner Corporation (NASDAQ:BANR). This group of stocks’ market caps are similar to BBBY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMK 19 51204 7
NGM 12 106170 0
NBTB 9 14109 5
OSIS 13 29529 -2
ILPT 9 50520 0
BSM 5 6083 2
BANR 14 49095 -1
Average 11.6 43816 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $351 million in BBBY’s case. Weis Markets, Inc. (NYSE:WMK) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) is more popular among hedge funds. Our overall hedge fund sentiment score for BBBY is 89.1. 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. 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 33% in 2020 through the end of August and still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on BBBY, though not to the same extent, as the stock returned 14.9% since the end of June and outperformed the market as well.

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