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Were Hedge Funds Right About Souring On Shoe Carnival, Inc. (SCVL)?

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 (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. In this article, we will take a closer look at hedge fund sentiment towards Shoe Carnival, Inc. (NASDAQ:SCVL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Shoe Carnival, Inc. (NASDAQ:SCVL) investors should pay attention to a decrease in enthusiasm from smart money lately. SCVL was in 11 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with SCVL holdings at the end of the previous quarter. Our calculations also showed that SCVL 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.

Today there are a multitude of gauges stock market investors put to use to appraise publicly traded companies. A couple of the most innovative gauges are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outclass the S&P 500 by a significant margin (see the details here).

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

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. Keeping this in mind we’re going to analyze the recent hedge fund action regarding Shoe Carnival, Inc. (NASDAQ:SCVL).

How are hedge funds trading Shoe Carnival, Inc. (NASDAQ:SCVL)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in SCVL a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is SCVL A Good Stock To Buy?

More specifically, Royce & Associates was the largest shareholder of Shoe Carnival, Inc. (NASDAQ:SCVL), with a stake worth $18.2 million reported as of the end of September. Trailing Royce & Associates was Arrowstreet Capital, which amassed a stake valued at $6.9 million. Balyasny Asset Management, Maverick Capital, and Winton Capital Management 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 Royce & Associates allocated the biggest weight to Shoe Carnival, Inc. (NASDAQ:SCVL), around 0.25% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to SCVL.

Judging by the fact that Shoe Carnival, Inc. (NASDAQ:SCVL) has experienced falling interest from the smart money, logic holds that there was a specific group of hedge funds that slashed their entire stakes heading into Q4. It’s worth mentioning that Mark Coe’s Intrinsic Edge Capital dumped the largest stake of all the hedgies followed by Insider Monkey, worth an estimated $11.6 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $6.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Shoe Carnival, Inc. (NASDAQ:SCVL) but similarly valued. We will take a look at Tribune Publishing Company (NASDAQ:TPCO), Blue Bird Corporation (NASDAQ:BLBD), Casa Systems, Inc. (NASDAQ:CASA), and Watford Holdings Ltd. (NASDAQ:WTRE). This group of stocks’ market values resemble SCVL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPCO 13 102133 0
BLBD 9 21205 -3
CASA 6 3172 -4
WTRE 7 7810 0
Average 8.75 33580 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $32 million in SCVL’s case. Tribune Publishing Company (NASDAQ:TPCO) is the most popular stock in this table. On the other hand Casa Systems, Inc. (NASDAQ:CASA) is the least popular one with only 6 bullish hedge fund positions. Shoe Carnival, Inc. (NASDAQ:SCVL) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SCVL as the stock returned 41.7% in Q2 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.