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. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Synchrony Financial (NYSE:SYF) based on that data.
Is Synchrony Financial (NYSE:SYF) ready to rally soon? Prominent investors are becoming less hopeful. The number of long hedge fund positions shrunk by 5 lately. Our calculations also showed that SYF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are dozens of formulas market participants use to appraise publicly traded companies. Some of the most under-the-radar formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top investment managers can outperform the S&P 500 by a superb amount (see the details here).
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we’re going to take a glance at the key hedge fund action regarding Synchrony Financial (NYSE:SYF).
What have hedge funds been doing with Synchrony Financial (NYSE:SYF)?
At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in SYF over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the number one position in Synchrony Financial (NYSE:SYF). Berkshire Hathaway has a $749.1 million position in the stock, comprising 0.3% of its 13F portfolio. On Berkshire Hathaway’s heels is Cliff Asness of AQR Capital Management, with a $488.8 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Seth Klarman’s Baupost Group and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 17.51% of its 13F portfolio. DPM Capital is also relatively very bullish on the stock, dishing out 11.82 percent of its 13F equity portfolio to SYF.
Because Synchrony Financial (NYSE:SYF) has experienced declining sentiment from the smart money, we can see that there was a specific group of money managers who were dropping their positions entirely in the third quarter. Interestingly, Renaissance Technologies said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth an estimated $32.9 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $22.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Synchrony Financial (NYSE:SYF) but similarly valued. We will take a look at Chipotle Mexican Grill, Inc. (NYSE:CMG), Coca-Cola European Partners plc (NYSE:CCEP), The Kroger Co. (NYSE:KR), and Cerner Corporation (NASDAQ:CERN). This group of stocks’ market values match SYF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMG | 48 | 3903315 | 5 |
| CCEP | 21 | 222283 | 4 |
| KR | 31 | 1355820 | 1 |
| CERN | 34 | 1122502 | -4 |
| Average | 33.5 | 1650980 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1651 million. That figure was $2270 million in SYF’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 21 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately SYF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SYF were disappointed as the stock returned -31.5% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
