Sinclair Broadcast Group (SBGI): Hedge Funds Never Been Less Bullish

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Sinclair Broadcast Group, Inc. (NASDAQ:SBGI).

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. SBGI investors should be aware of a decrease in hedge fund sentiment of late. There were 33 hedge funds in our database with SBGI positions at the end of the previous quarter. Our calculations also showed that SBGI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the new hedge fund action surrounding Sinclair Broadcast Group, Inc. (NASDAQ:SBGI).

What have hedge funds been doing with Sinclair Broadcast Group, Inc. (NASDAQ:SBGI)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBGI over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Stephen Mildenhall’s Contrarius Investment Management has the biggest position in Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), worth close to $29.7 million, accounting for 3.8% of its total 13F portfolio. On Contrarius Investment Management’s heels is Parag Vora of HG Vora Capital Management, with a $28.1 million position; 2.7% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions encompass Derek C. Schrier’s Indaba Capital Management, Randall Smith’s Alden Global Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), around 10.39% of its 13F portfolio. Beach Point Capital Management is also relatively very bullish on the stock, designating 8.73 percent of its 13F equity portfolio to SBGI.

Judging by the fact that Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few funds that slashed their entire stakes heading into Q4. Interestingly, William C. Martin’s Raging Capital Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising close to $47.6 million in stock, and Edward Goodnow’s Goodnow Investment Group was right behind this move, as the fund dropped about $17.8 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 8 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) but similarly valued. We will take a look at Navient Corp (NASDAQ:NAVI), First Financial Bancorp (NASDAQ:FFBC), The Geo Group, Inc. (NYSE:GEO), and The Chemours Company (NYSE:CC). This group of stocks’ market values match SBGI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NAVI 33 152856 -5
FFBC 8 8121 3
GEO 14 83253 -8
CC 32 239323 3
Average 21.75 120888 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $179 million in SBGI’s case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only 8 bullish hedge fund positions. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on SBGI as the stock returned 36.3% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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