Were These Hedge Funds Right About Box, Inc. (BOX)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 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 Box, Inc. (NYSE:BOX).

Is Box, Inc. (NYSE:BOX) ready to rally soon? Hedge funds were getting less optimistic. The number of long hedge fund bets dropped by 1 recently. Box, Inc. (NYSE:BOX) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. Our calculations also showed that BOX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 34 hedge funds in our database with BOX positions at the end of the first quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a look at the key hedge fund action surrounding Box, Inc. (NYSE:BOX).

What have hedge funds been doing with Box, Inc. (NYSE:BOX)?

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards BOX over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Starboard Value LP held the most valuable stake in Box, Inc. (NYSE:BOX), which was worth $187.8 million at the end of the third quarter. On the second spot was RGM Capital which amassed $104.6 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Two Sigma Advisors 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 Potrero Capital Research allocated the biggest weight to Box, Inc. (NYSE:BOX), around 7.19% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 6.69 percent of its 13F equity portfolio to BOX.

Due to the fact that Box, Inc. (NYSE:BOX) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds who were dropping their full holdings last quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $14.3 million in stock. Thomas Ellis and Todd Hammer’s fund, North Run Capital, also cut its stock, about $5.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Box, Inc. (NYSE:BOX). These stocks are Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), nVent Electric plc (NYSE:NVT), Coherent, Inc. (NASDAQ:COHR), Valley National Bancorp (NASDAQ:VLY), Alarm.com Holdings Inc (NASDAQ:ALRM), Selective Insurance Group, Inc. (NASDAQ:SIGI), and VEON Ltd. (NASDAQ:VEON). All of these stocks’ market caps are closest to BOX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $656 million in BOX’s case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Box, Inc. (NYSE:BOX) is more popular among hedge funds. Our overall hedge fund sentiment score for BOX is 82.3. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately BOX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BOX were disappointed as the stock returned -25.3% since the end of the second quarter (through 10/30) 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.

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