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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about EVO Payments, Inc. (NASDAQ:EVOP).
Is EVO Payments, Inc. (NASDAQ:EVOP) a safe stock to buy now? Investors who are in the know are becoming hopeful. The number of long hedge fund positions inched up by 7 recently. Our calculations also showed that EVOP 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). EVOP was in 22 hedge funds’ portfolios at the end of December. There were 15 hedge funds in our database with EVOP positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the recent hedge fund action surrounding EVO Payments, Inc. (NASDAQ:EVOP).
How have hedgies been trading EVO Payments, Inc. (NASDAQ:EVOP)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 47% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EVOP over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Greenhouse Funds was the largest shareholder of EVO Payments, Inc. (NASDAQ:EVOP), with a stake worth $25.7 million reported as of the end of September. Trailing Greenhouse Funds was Islet Management, which amassed a stake valued at $10.6 million. Marshall Wace LLP, Echo Street Capital Management, and D E Shaw 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 Greenhouse Funds allocated the biggest weight to EVO Payments, Inc. (NASDAQ:EVOP), around 4.72% of its 13F portfolio. Islet Management is also relatively very bullish on the stock, dishing out 0.98 percent of its 13F equity portfolio to EVOP.
As aggregate interest increased, key hedge funds were breaking ground themselves. Echo Street Capital Management, managed by Greg Poole, established the biggest position in EVO Payments, Inc. (NASDAQ:EVOP). Echo Street Capital Management had $9.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $5.6 million investment in the stock during the quarter. The following funds were also among the new EVOP investors: Josh Donfeld and David Rogers’s Castle Hook Partners, Matthew L Pinz’s Pinz Capital, and Mika Toikka’s AlphaCrest Capital Management.
Let’s go over hedge fund activity in other stocks similar to EVO Payments, Inc. (NASDAQ:EVOP). We will take a look at PriceSmart, Inc. (NASDAQ:PSMT), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), Tri Pointe Group Inc (NYSE:TPH), and Evoqua Water Technologies Corp. (NYSE:AQUA). All of these stocks’ market caps resemble EVOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSMT | 18 | 51318 | 8 |
| AUPH | 21 | 641333 | 8 |
| TPH | 32 | 319438 | 4 |
| AQUA | 21 | 170056 | 5 |
| Average | 23 | 295536 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $296 million. That figure was $89 million in EVOP’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand PriceSmart, Inc. (NASDAQ:PSMT) is the least popular one with only 18 bullish hedge fund positions. EVO Payments, Inc. (NASDAQ:EVOP) 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. Our calculations showed that top 20 most popular stocks among hedge funds 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 beat the market by 4.2 percentage points. Unfortunately EVOP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EVOP investors were disappointed as the stock returned -47.9% 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 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.
