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Were Hedge Funds Right About Flocking Into Bed Bath & Beyond Inc. (BBBY)?

Is Bed Bath & Beyond Inc. (NASDAQ:BBBY) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2018. BBBY has experienced an increase in support from the world’s most elite money managers recently. There were 28 hedge funds in our database with BBBY holdings at the end of the previous quarter. Our calculations also showed that BBBY isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Anchorage Capital 2014 Q2 Investor Letter

Let’s take a peek at the fresh hedge fund action encompassing Bed Bath & Beyond Inc. (NASDAQ:BBBY).

What does the smart money think about Bed Bath & Beyond Inc. (NASDAQ:BBBY)?

Heading into the first quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in BBBY a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

BBBY_apr2019

The largest stake in Bed Bath & Beyond Inc. (NASDAQ:BBBY) was held by AQR Capital Management, which reported holding $53.6 million worth of stock at the end of December. It was followed by Bridgewater Associates with a $42.6 million position. Other investors bullish on the company included Anchorage Advisors, Valueworks LLC, and Renaissance Technologies.

As one would reasonably expect, some big names were breaking ground themselves. Anchorage Advisors, managed by Kevin Michael Ulrich and Anthony Davis, assembled the largest call position in Bed Bath & Beyond Inc. (NASDAQ:BBBY). Anchorage Advisors had $34 million invested in the company at the end of the quarter. Himanshu H. Shah’s Shah Capital Management also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Chuck Royce’s Royce & Associates, and Philippe Laffont’s Coatue Management.

Let’s now review hedge fund activity in other stocks similar to Bed Bath & Beyond Inc. (NASDAQ:BBBY). We will take a look at Arch Coal, Inc. (NYSE:ARCH), Varonis Systems Inc (NASDAQ:VRNS), Ensco Rowan plc (NYSE:ESV), and Welbilt, Inc. (NYSE:WBT). This group of stocks’ market values are similar to BBBY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARCH 25 345870 -1
VRNS 21 138429 -1
ESV 34 291967 5
WBT 23 508373 1
Average 25.75 321160 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $197 million in BBBY’s case. Ensco Rowan plc (NYSE:ESV) is the most popular stock in this table. On the other hand Varonis Systems Inc (NASDAQ:VRNS) is the least popular one with only 21 bullish hedge fund positions. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on BBBY as the stock returned 49.2% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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