How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Synchrony Financial (NYSE:SYF) and determine whether hedge funds had an edge regarding this stock.
Is Synchrony Financial (NYSE:SYF) a bargain? The smart money was taking a pessimistic view. The number of bullish hedge fund positions went down by 4 recently. Synchrony Financial (NYSE:SYF) was in 35 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 82. Our calculations also showed that SYF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a peek at the fresh hedge fund action regarding Synchrony Financial (NYSE:SYF).
Do Hedge Funds Think SYF Is A Good Stock To Buy Now?
At Q3’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SYF over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Synchrony Financial (NYSE:SYF), with a stake worth $583.9 million reported as of the end of September. Trailing Arrowstreet Capital was PAR Capital Management, which amassed a stake valued at $361.7 million. GLG Partners, Hosking Partners, and Soros Fund 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 PAR Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 8.68% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, setting aside 2.41 percent of its 13F equity portfolio to SYF.
Due to the fact that Synchrony Financial (NYSE:SYF) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, James Parsons’s Junto Capital Management cut the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $53.9 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $30.7 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Synchrony Financial (NYSE:SYF). These stocks are WEC Energy Group, Inc. (NYSE:WEC), Occidental Petroleum Corporation (NYSE:OXY), Zebra Technologies Corporation (NASDAQ:ZBRA), PACCAR Inc (NASDAQ:PCAR), Delta Air Lines, Inc. (NYSE:DAL), Skyworks Solutions Inc (NASDAQ:SWKS), and Bill.com Holdings, Inc. (NYSE:BILL). This group of stocks’ market caps resemble SYF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WEC | 31 | 432498 | 4 |
| OXY | 60 | 3189745 | 3 |
| ZBRA | 39 | 1304604 | 5 |
| PCAR | 26 | 472066 | -2 |
| DAL | 50 | 1217986 | 1 |
| SWKS | 36 | 805593 | -1 |
| BILL | 65 | 4287204 | 12 |
| Average | 43.9 | 1672814 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $1673 million. That figure was $1377 million in SYF’s case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 26 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYF is 25.3. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately, SYF wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SYF investors were disappointed as the stock returned -12.5% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
