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Were Hedge Funds Right About Buying Big 5 Sporting Goods Corporation (BGFV)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Big 5 Sporting Goods Corporation (NASDAQ:BGFV) and determine whether hedge funds had an edge regarding this stock.

Is Big 5 Sporting Goods Corporation (NASDAQ:BGFV) a first-rate investment right now? Investors who are in the know were turning bullish. The number of bullish hedge fund bets inched up by 3 lately. Our calculations also showed that BGFV 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). BGFV was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with BGFV positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steve Leonard Pacifica Capital

Steve Leonard of Pacifica Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the fresh hedge fund action regarding Big 5 Sporting Goods Corporation (NASDAQ:BGFV).

What does smart money think about Big 5 Sporting Goods Corporation (NASDAQ:BGFV)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the fourth quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in BGFV a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, GMT Capital held the most valuable stake in Big 5 Sporting Goods Corporation (NASDAQ:BGFV), which was worth $1.6 million at the end of the third quarter. On the second spot was Firefly Value Partners which amassed $1.1 million worth of shares. Millennium Management, Cove Street Capital, and GAMCO Investors 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 Firefly Value Partners allocated the biggest weight to Big 5 Sporting Goods Corporation (NASDAQ:BGFV), around 0.2% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to BGFV.

As industrywide interest jumped, some big names were breaking ground themselves. GMT Capital, managed by Thomas E. Claugus, initiated the largest position in Big 5 Sporting Goods Corporation (NASDAQ:BGFV). GMT Capital had $1.6 million invested in the company at the end of the quarter. Steve Leonard’s Pacifica Capital Investments also made a $0 million investment in the stock during the quarter. The only other fund with a new position in the stock is Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now review hedge fund activity in other stocks similar to Big 5 Sporting Goods Corporation (NASDAQ:BGFV). We will take a look at BioCardia, Inc. (NASDAQ:BCDA), United States Antimony Corporation (NYSE:UAMY), ADDvantage Technologies Group, Inc. (NASDAQ:AEY), and Salem Media Group Inc. (NASDAQ:SALM). This group of stocks’ market valuations match BGFV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCDA 1 104 0
UAMY 1 21 -1
AEY 1 1016 0
SALM 4 766 0
Average 1.75 477 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $4 million in BGFV’s case. Salem Media Group Inc. (NASDAQ:SALM) is the most popular stock in this table. On the other hand BioCardia, Inc. (NASDAQ:BCDA) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Big 5 Sporting Goods Corporation (NASDAQ:BGFV) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BGFV as the stock returned 81.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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