While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Rent-A-Center Inc (NASDAQ:RCII) and see how the stock performed in comparison to hedge funds’ consensus picks.
Is Rent-A-Center Inc (NASDAQ:RCII) a bargain? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets went up by 10 recently. Our calculations also showed that RCII isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). RCII was in 28 hedge funds’ portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with RCII holdings at the end of the previous quarter.
In today’s marketplace there are a multitude of metrics stock traders can use to appraise their holdings. A couple of the most under-the-radar metrics are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outperform the broader indices by a superb margin (see the details here).
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the fresh hedge fund action surrounding Rent-A-Center Inc (NASDAQ:RCII).
How have hedgies been trading Rent-A-Center Inc (NASDAQ:RCII)?
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RCII over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Rent-A-Center Inc (NASDAQ:RCII) was held by Engaged Capital, which reported holding $137.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $114.5 million position. Other investors bullish on the company included LMR Partners, Cloverdale Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Engaged Capital allocated the biggest weight to Rent-A-Center Inc (NASDAQ:RCII), around 18.68% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, earmarking 13.27 percent of its 13F equity portfolio to RCII.
As one would reasonably expect, some big names have been driving this bullishness. Royce & Associates, managed by Chuck Royce, assembled the largest position in Rent-A-Center Inc (NASDAQ:RCII). Royce & Associates had $13.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $6.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Philippe Laffont’s Coatue Management, and Anand Parekh’s Alyeska Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Rent-A-Center Inc (NASDAQ:RCII) but similarly valued. These stocks are TPG Specialty Lending Inc (NYSE:TSLX), Alamo Group, Inc. (NYSE:ALG), TriMas Corporation (NASDAQ:TRS), and Employers Holdings, Inc. (NYSE:EIG). This group of stocks’ market valuations are similar to RCII’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSLX | 8 | 61787 | -2 |
| ALG | 10 | 216837 | 3 |
| TRS | 14 | 110541 | -1 |
| EIG | 14 | 76306 | -2 |
| Average | 11.5 | 116368 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $382 million in RCII’s case. TriMas Corporation (NASDAQ:TRS) 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 8 bullish hedge fund positions. Compared to these stocks Rent-A-Center Inc (NASDAQ:RCII) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on RCII as the stock returned 76.4% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
