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Should You Avoid HSN, Inc. (HSNI)?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like HSN, Inc. (NASDAQ:HSNI).

Is HSN a healthy stock for your portfolio? The stock is down by 33% year-to-date and the best stock pickers are getting less bullish as the number of funds with long positions has retreated by 10 lately. At the end of this article we will also compare HSNI to other stocks, including New Residential Investment Corp (NYSE:NRZ), PrivateBancorp Inc (NASDAQ:PVTB), and Federated Investors Inc (NYSE:FII) to get a better sense of its popularity.

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Today there are a lot of tools shareholders can use to grade publicly traded companies. Some of the most useful tools are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top money managers can outclass the market by a healthy amount (see the details here).

With all of this in mind, let’s view the latest action regarding HSN, Inc. (NASDAQ:HSNI).

What does the smart money think about HSN, Inc. (NASDAQ:HSNI)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 50% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Matthew Iorio’s White Elm Capital has the number one position in HSN, Inc. (NASDAQ:HSNI), worth close to $38.5 million, amounting to 4% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $8.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise D. E. Shaw’s D E Shaw, Mario Gabelli’s GAMCO Investors, and Jim Simons’ Renaissance Technologies.

Judging by the fact that HSN, Inc. (NASDAQ:HSNI) has experienced a declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Robert Millard’s Realm Partners said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $4.6 million in stock. Andrew Sandler’s fund, Sandler Capital Management, also sold off its stock, about $3.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 10 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as HSN, Inc. (NASDAQ:HSNI) but similarly valued. We will take a look at New Residential Investment Corp (NYSE:NRZ), PrivateBancorp Inc (NASDAQ:PVTB), Federated Investors Inc (NYSE:FII), and Integrated Device Technology, Inc. (NASDAQ:IDTI). This group of stocks’ market values are closest to HSNI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRZ 33 674420 -5
PVTB 15 233875 -2
FII 12 272665 -6
IDTI 36 520148 -7

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $425 million. That figure was just $59 million in HSNI’s case. Integrated Device Technology, Inc. (NASDAQ:IDTI) is the most popular stock in this table. On the other hand Federated Investors Inc (NYSE:FII) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks HSN, Inc. (NASDAQ:HSNI) is even less popular than FII. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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