Did Hedge Funds Drop The Ball On GNC Holdings Inc (GNC) ?
Debasis Saha
We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like GNC Holdings Inc (NYSE:GNC).
Hedge fund interest in GNC Holdings Inc (NYSE:GNC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GNC to other stocks including Coastal Financial Corporation (NASDAQ:CCB), Two River Bancorp (NASDAQ:TRCB), and United Security Bancshares (NASDAQ:UBFO) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are numerous gauges stock traders put to use to grade publicly traded companies. A duo of the best gauges are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite fund managers can outperform the S&P 500 by a superb margin (see the details here).
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's check out the key hedge fund action regarding GNC Holdings Inc (NYSE:GNC).
How are hedge funds trading GNC Holdings Inc (NYSE:GNC)?
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in GNC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Is GNC A Good Stock To Buy?
When looking at the institutional investors followed by Insider Monkey, Himanshu H. Shah's Shah Capital Management has the most valuable position in GNC Holdings Inc (NYSE:GNC), worth close to $5.8 million, corresponding to 3.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $4.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain Douglas Dethy's DC Capital Partners, Mario Gabelli's GAMCO Investors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Shah Capital Management allocated the biggest weight to GNC Holdings Inc (NYSE:GNC), around 3.13% of its 13F portfolio. DC Capital Partners is also relatively very bullish on the stock, dishing out 2.82 percent of its 13F equity portfolio to GNC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Paloma Partners).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as GNC Holdings Inc (NYSE:GNC) but similarly valued. These stocks are Coastal Financial Corporation (NASDAQ:CCB), Two River Bancorp (NASDAQ:TRCB), United Security Bancshares (NASDAQ:UBFO), and CompX International Inc. (NYSE:CIX). All of these stocks' market caps match GNC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCB,3,19904,1 TRCB,5,14422,2 UBFO,2,8561,0 CIX,4,13261,0 Average,3.5,14037,0.75 [/table]
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $15 million in GNC's case. Two River Bancorp (NASDAQ:TRCB) is the most popular stock in this table. On the other hand United Security Bancshares (NASDAQ:UBFO) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks GNC Holdings Inc (NYSE:GNC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GNC as the stock returned 37.4% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.
