Should You Buy Holdings, Inc. (BILL)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Holdings, Inc. (NYSE:BILL). Holdings, Inc. (NYSE:BILL) has experienced an increase in activity from the world’s largest hedge funds of late. BILL was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 0 hedge funds in our database with BILL holdings at the end of the previous quarter. Our calculations also showed that BILL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Gabriel Plotkin Melvin Capital Management

With all of this in mind we’re going to analyze the latest hedge fund action regarding Holdings, Inc. (NYSE:BILL).

What have hedge funds been doing with Holdings, Inc. (NYSE:BILL)?

Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32 from the previous quarter. The graph below displays the number of hedge funds with bullish position in BILL over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Napier Park Global Capital held the most valuable stake in Holdings, Inc. (NYSE:BILL), which was worth $180.9 million at the end of the third quarter. On the second spot was MIG Capital which amassed $16.8 million worth of shares. Citadel Investment Group, Schonfeld Strategic Advisors, and Melvin Capital Management 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 Napier Park Global Capital allocated the biggest weight to Holdings, Inc. (NYSE:BILL), around 84.23% of its 13F portfolio. Hunt Lane Capital is also relatively very bullish on the stock, earmarking 2.52 percent of its 13F equity portfolio to BILL.

Consequently, some big names have jumped into Holdings, Inc. (NYSE:BILL) headfirst. Napier Park Global Capital, managed by Jim O’Brien and Jonathan Dorfman, initiated the largest position in Holdings, Inc. (NYSE:BILL). Napier Park Global Capital had $180.9 million invested in the company at the end of the quarter. Richard Merage’s MIG Capital also initiated a $16.8 million position during the quarter. The other funds with brand new BILL positions are Ken Griffin’s Citadel Investment Group, Schonfeld Strategic Advisors, and Gabriel Plotkin’s Melvin Capital Management.

Let’s go over hedge fund activity in other stocks similar to Holdings, Inc. (NYSE:BILL). We will take a look at Summit Materials Inc (NYSE:SUM), LCI Industries (NYSE:LCII), Cronos Group Inc. (NASDAQ:CRON), and Atlantica Yield plc (NASDAQ:AY). All of these stocks’ market caps resemble BILL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUM 35 454382 8
LCII 17 127058 1
CRON 10 90321 -2
AY 16 122712 -3
Average 19.5 198618 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $311 million in BILL’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 10 bullish hedge fund positions. Holdings, Inc. (NYSE:BILL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on BILL as the stock returned 8% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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