The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Liberty Tax Inc (NASDAQ:TAX), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in Liberty Tax Inc (NASDAQ:TAX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Insteel Industries Inc (NASDAQ:IIIN), Jones Energy Inc (NYSE:JONE), and Aratana Therapeutics Inc (NASDAQ:PETX) to gather more data points.
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At the moment there are a multitude of methods investors employ to analyze their holdings. A pair of the most useful methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best money managers can trounce their index-focused peers by a very impressive amount (see the details here).
Keeping this in mind, we’re going to analyze the key action surrounding Liberty Tax Inc (NASDAQ:TAX).
What have hedge funds been doing with Liberty Tax Inc (NASDAQ:TAX)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Nine Ten Partners, managed by Brian Bares, Russell Mollen, and James Bradshaw, holds the most valuable position in Liberty Tax Inc (NASDAQ:TAX). Nine Ten Partners has a $25.8 million position in the stock, comprising 11.6% of its 13F portfolio. Coming in second is Chuck Royce’s Royce & Associates, with a $18.6 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism comprise Bryant Regan’s Lafitte Capital Management and Andy Redleaf’s Whitebox Advisors.
However, there also lies a certain “tier” of money managers who sold off their positions entirely last quarter. It’s worth mentioning that Skylands Capital dumped the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $2.7 million in stock, and Cliff Asness’ AQR Capital Management was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Liberty Tax Inc (NASDAQ:TAX) but similarly valued. We will take a look at Insteel Industries Inc (NASDAQ:IIIN), Jones Energy Inc (NYSE:JONE), Aratana Therapeutics Inc (NASDAQ:PETX), and AR Capital Acquisition Corp (NASDAQ:AUMA). This group of stocks’ market caps are closest to TAX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IIIN | 12 | 38164 | 0 |
| JONE | 4 | 24402 | -3 |
| PETX | 13 | 42579 | 0 |
| AUMA | 13 | 164013 | 0 |
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $50 million in TAX’s case. Aratana Therapeutics Inc (NASDAQ:PETX) is the most popular stock in this table. On the other hand Jones Energy Inc (NYSE:JONE) is the least popular one with only 4 bullish hedge fund positions. Liberty Tax Inc (NASDAQ:TAX) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PETX might be a better candidate to consider a long position.
