Were Hedge Funds Right About Stamps.com Inc. (STMP)?

Reymerlyn Martin

Sat, May 9, 2020, 7:20 PM 5 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 this article we will take a closer look at Stamps.com Inc. (NASDAQ:STMP).

Is Stamps.com Inc. (NASDAQ:STMP) a great stock to buy now? Prominent investors are in a bullish mood. The number of bullish hedge fund bets rose by 3 in recent months. Our calculations also showed that STMP 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). STMP was in 20 hedge funds' portfolios at the end of December. There were 17 hedge funds in our database with STMP holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_189632" align="aligncenter" width="400"]

David Harding of Winton Capital Management[/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 let's go over the new hedge fund action surrounding Stamps.com Inc. (NASDAQ:STMP).

What have hedge funds been doing with Stamps.com Inc. (NASDAQ:STMP)?

At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in STMP a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Stamps.com Inc. (NASDAQ:STMP) was held by D E Shaw, which reported holding $96.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $90.2 million position. Other investors bullish on the company included Okumus Fund Management, Simcoe Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Okumus Fund Management allocated the biggest weight to Stamps.com Inc. (NASDAQ:STMP), around 13.51% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, setting aside 6.9 percent of its 13F equity portfolio to STMP.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Winton Capital Management, managed by David Harding, assembled the biggest position in Stamps.com Inc. (NASDAQ:STMP). Winton Capital Management had $3.2 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Israel Englander's Millennium Management, and Cliff Asness's AQR Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Stamps.com Inc. (NASDAQ:STMP) but similarly valued. We will take a look at Innoviva, Inc. (NASDAQ:INVA), TPG Specialty Lending Inc (NYSE:TSLX), First Commonwealth Financial (NYSE:FCF), and Boise Cascade Co (NYSE:BCC). This group of stocks' market valuations are closest to STMP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INVA,19,303137,-6 TSLX,10,64908,0 FCF,15,33470,3 BCC,24,77986,9 Average,17,119875,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $347 million in STMP's case. Boise Cascade Co (NYSE:BCC) is the most popular stock in this table. On the other hand TPG Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 10 bullish hedge fund positions. Stamps.com Inc. (NASDAQ:STMP) 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on STMP as the stock returned 85% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.