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Were Hedge Funds Right About Brookdale Senior Living (BKD)?

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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Brookdale Senior Living, Inc. (NYSE:BKD).

Is Brookdale Senior Living, Inc. (NYSE:BKD) worth your attention right now? The smart money is betting on the stock. The number of bullish hedge fund positions rose by 1 lately. Our calculations also showed that BKD 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). BKD was in 22 hedge funds’ portfolios at the end of December. There were 21 hedge funds in our database with BKD holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GLENVIEW CAPITAL

Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action surrounding Brookdale Senior Living, Inc. (NYSE:BKD).

How are hedge funds trading Brookdale Senior Living, Inc. (NYSE:BKD)?

Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BKD over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Brookdale Senior Living, Inc. (NYSE:BKD) was held by Glenview Capital, which reported holding $128.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $104.5 million position. Other investors bullish on the company included Camber Capital Management, Deerfield Management, and Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to Brookdale Senior Living, Inc. (NYSE:BKD), around 7.93% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, designating 5.75 percent of its 13F equity portfolio to BKD.

As one would reasonably expect, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Brookdale Senior Living, Inc. (NYSE:BKD). Balyasny Asset Management had $4.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.8 million position during the quarter. The other funds with brand new BKD positions are Donald Sussman’s Paloma Partners and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Brookdale Senior Living, Inc. (NYSE:BKD). These stocks are Tootsie Roll Industries, Inc. (NYSE:TR), City Holding Company (NASDAQ:CHCO), Sonic Automotive Inc (NYSE:SAH), and The Buckle, Inc. (NYSE:BKE). This group of stocks’ market valuations are closest to BKD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TR 17 81816 0
CHCO 13 29623 3
SAH 16 46733 3
BKE 21 82384 7
Average 16.75 60139 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $454 million in BKD’s case. The Buckle, Inc. (NYSE:BKE) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Brookdale Senior Living, Inc. (NYSE:BKD) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately BKD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BKD were disappointed as the stock returned -57.1% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.

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