Were Hedge Funds Right About The Michaels Companies, Inc. (MIK)?

Asma UL Husna

Sat, May 9, 2020, 6:19 PM 6 min read

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of The Michaels Companies, Inc. (NASDAQ:MIK) based on that data.

The Michaels Companies, Inc. (NASDAQ:MIK) shareholders have witnessed an increase in hedge fund sentiment lately. MIK was in 26 hedge funds' portfolios at the end of December. There were 24 hedge funds in our database with MIK positions at the end of the previous quarter. Our calculations also showed that MIK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_26869" align="aligncenter" width="397"]

Larry Robbins of Glenview Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the new hedge fund action regarding The Michaels Companies, Inc. (NASDAQ:MIK).

What have hedge funds been doing with The Michaels Companies, Inc. (NASDAQ:MIK)?

Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in MIK a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Contrarius Investment Management was the largest shareholder of The Michaels Companies, Inc. (NASDAQ:MIK), with a stake worth $46 million reported as of the end of September. Trailing Contrarius Investment Management was AQR Capital Management, which amassed a stake valued at $37.4 million. Arrowstreet Capital, Adage Capital Management, and Schonfeld Strategic 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 Contrarius Investment Management allocated the biggest weight to The Michaels Companies, Inc. (NASDAQ:MIK), around 2.41% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 1.35 percent of its 13F equity portfolio to MIK.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most outsized position in The Michaels Companies, Inc. (NASDAQ:MIK). Adage Capital Management had $11.9 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $10.7 million position during the quarter. The other funds with brand new MIK positions are Larry Robbins's Glenview Capital, Ali Motamed's Invenomic Capital Management, and David Harding's Winton Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Michaels Companies, Inc. (NASDAQ:MIK) but similarly valued. These stocks are Kearny Financial Corp. (NASDAQ:KRNY), Alector, Inc. (NASDAQ:ALEC), Zealand Pharma A/S (NASDAQ:ZEAL), and Par Pacific Holdings, Inc. (NYSE:PARR). This group of stocks' market valuations are closest to MIK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRNY,21,130512,5 ALEC,13,284408,0 ZEAL,4,35678,1 PARR,18,135621,1 Average,14,146555,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $157 million in MIK's case. Kearny Financial Corp. (NASDAQ:KRNY) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks The Michaels Companies, Inc. (NASDAQ:MIK) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately MIK wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MIK were disappointed as the stock returned -65.1% during the four months of 2020 (through May 1st) 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.