Encore Capital Group, Inc. (ECPG): Hedge Funds and Insiders Are Bearish, What Should You Do?

Is Encore Capital Group, Inc. (NASDAQ:ECPG) undervalued? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions dropped by 5 in recent months.

If you’d ask most investors, hedge funds are seen as underperforming, old investment tools of years past. While there are greater than 8000 funds in operation at present, we choose to focus on the elite of this club, close to 450 funds. It is estimated that this group oversees the majority of all hedge funds’ total capital, and by tracking their top equity investments, we have spotted a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Equally as important, bullish insider trading sentiment is another way to parse down the marketplace. Obviously, there are plenty of stimuli for a corporate insider to sell shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Various empirical studies have demonstrated the market-beating potential of this tactic if piggybackers understand where to look (learn more here).

Now, we’re going to take a glance at the key action encompassing Encore Capital Group, Inc. (NASDAQ:ECPG).

What does the smart money think about Encore Capital Group, Inc. (NASDAQ:ECPG)?

In preparation for this year, a total of 6 of the hedge funds we track were bullish in this stock, a change of -45% from the third quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings considerably.

When looking at the hedgies we track, John Murphy’s Alydar Capital had the most valuable position in Encore Capital Group, Inc. (NASDAQ:ECPG), worth close to $65.2 million, comprising 5.1% of its total 13F portfolio. Coming in second is Andy Redleaf of Whitebox Advisors, with a $9.8 million position; 0.5% of its 13F portfolio is allocated to the company. Other peers with similar optimism include D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Seeing as Encore Capital Group, Inc. (NASDAQ:ECPG) has faced a declination in interest from hedge fund managers, logic holds that there were a few money managers that decided to sell off their entire stakes at the end of the year. It’s worth mentioning that Jim Simons’s Renaissance Technologies sold off the largest position of all the hedgies we watch, valued at close to $2.4 million in stock.. Joseph A. Jolson’s fund, Harvest Capital Strategies, also dumped its stock, about $1 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds at the end of the year.

What do corporate executives and insiders think about Encore Capital Group, Inc. (NASDAQ:ECPG)?

Insider trading activity, especially when it’s bullish, is best served when the company we’re looking at has seen transactions within the past six months. Over the last half-year time period, Encore Capital Group, Inc. (NASDAQ:ECPG) has seen zero unique insiders buying, and 2 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Encore Capital Group, Inc. (NASDAQ:ECPG). These stocks are Triangle Capital Corporation (NYSE:TCAP), Duff & Phelps Corp (NYSE:DUF), Blackrock Kelso Capital Corp. (NASDAQ:BKCC), Epoch Holding Corp (NASDAQ:EPHC), and Pacific Coast Oil Trust (NYSE:ROYT). This group of stocks are the members of the asset management industry and their market caps are similar to ECPG’s market cap.