We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Axos Financial, Inc. (NYSE:AX).
Axos Financial, Inc. (NYSE:AX) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of December. 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 Jack in the Box Inc. (NASDAQ:JACK), OSI Systems, Inc. (NASDAQ:OSIS), and Silicon Motion Technology Corp. (NASDAQ:SIMO) to gather more data points. Our calculations also showed that AX 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).
Today there are many tools stock market investors have at their disposal to grade publicly traded companies. A couple of the most underrated tools are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outclass their index-focused peers by a significant margin (see the details here).
Matthew Lindenbaum of Basswood Capital
With all of this in mind let’s take a look at the latest hedge fund action regarding Axos Financial, Inc. (NYSE:AX).
What does smart money think about Axos Financial, Inc. (NYSE:AX)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AX over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the biggest position in Axos Financial, Inc. (NYSE:AX). Basswood Capital has a $14.6 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $14.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism encompass D. E. Shaw’s D E Shaw, Chuck Royce’s Royce & Associates and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Axos Financial, Inc. (NYSE:AX), around 1.02% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, designating 0.82 percent of its 13F equity portfolio to AX.
Because Axos Financial, Inc. (NYSE:AX) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds who were dropping their entire stakes in the third quarter. It’s worth mentioning that Mika Toikka’s AlphaCrest Capital Management said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $1.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Axos Financial, Inc. (NYSE:AX). These stocks are Jack in the Box Inc. (NASDAQ:JACK), OSI Systems, Inc. (NASDAQ:OSIS), Silicon Motion Technology Corp. (NASDAQ:SIMO), and Primo Water Corporation (NYSE:COT). This group of stocks’ market valuations are closest to AX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JACK | 26 | 288965 | -4 |
| OSIS | 20 | 90282 | -5 |
| SIMO | 17 | 281949 | 2 |
| COT | 25 | 601347 | -4 |
| Average | 22 | 315636 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $71 million in AX’s case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Silicon Motion Technology Corp. (NASDAQ:SIMO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Axos Financial, Inc. (NYSE:AX) is even less popular than SIMO. Hedge funds dodged a bullet by taking a bearish stance towards AX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately AX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AX investors were disappointed as the stock returned -42.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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.
