Were Hedge Funds Right About Selling Container Store Group Inc (TCS)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Container Store Group Inc (NYSE:TCS).

Container Store Group Inc (NYSE:TCS) has seen a decrease in activity from the world’s largest hedge funds lately. Container Store Group Inc (NYSE:TCS) was in 18 hedge funds’ portfolios at the end of March. The all time high for this statistic is 20. There were 20 hedge funds in our database with TCS positions at the end of the fourth quarter. Our calculations also showed that TCS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s go over the new hedge fund action regarding Container Store Group Inc (NYSE:TCS).

Do Hedge Funds Think TCS Is A Good Stock To Buy Now?

At first quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in TCS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Leonard Green’s Leonard Green & Partners has the number one position in Container Store Group Inc (NYSE:TCS), worth close to $255.2 million, amounting to 3.3% of its total 13F portfolio. The second most bullish fund manager is Woodson Capital Management, managed by James Woodson Davis, which holds a $67.9 million position; 5.1% of its 13F portfolio is allocated to the company. Other peers that are bullish comprise D. E. Shaw’s D E Shaw, George McCabe’s Portolan Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Woodson Capital Management allocated the biggest weight to Container Store Group Inc (NYSE:TCS), around 5.08% of its 13F portfolio. Leonard Green & Partners is also relatively very bullish on the stock, designating 3.26 percent of its 13F equity portfolio to TCS.

Judging by the fact that Container Store Group Inc (NYSE:TCS) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their entire stakes last quarter. Intriguingly, Frank Fu’s CaaS Capital cut the largest stake of all the hedgies tracked by Insider Monkey, totaling about $6.3 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $2.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Container Store Group Inc (NYSE:TCS). These stocks are OraSure Technologies, Inc. (NASDAQ:OSUR), Knoll Inc (NYSE:KNL), PAE Incorporated (NASDAQ:PAE), Banco Macro SA (NYSE:BMA), Univest Financial Corporation (NASDAQ:UVSP), Aerie Pharmaceuticals Inc (NASDAQ:AERI), and Perdoceo Education Corporation (NASDAQ:PRDO). This group of stocks’ market valuations resemble TCS’s market valuation.

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As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $362 million in TCS’s case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 8 bullish hedge fund positions. Container Store Group Inc (NYSE:TCS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TCS is 61.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately TCS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TCS were disappointed as the stock returned -35.8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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