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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards FirstCash, Inc. (NASDAQ:FCFS).
FirstCash, Inc. (NASDAQ:FCFS) has seen a decrease in hedge fund interest of late. FCFS was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 19 hedge funds in our database with FCFS positions at the end of the previous quarter. Our calculations also showed that FCFS 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Bruce Kovner of Caxton Associates LP
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. With all of this in mind let’s check out the fresh hedge fund action encompassing FirstCash, Inc. (NASDAQ:FCFS).
Hedge fund activity in FirstCash, Inc. (NASDAQ:FCFS)
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FCFS over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in FirstCash, Inc. (NASDAQ:FCFS) was held by Renaissance Technologies, which reported holding $103.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $18.2 million position. Other investors bullish on the company included Millennium Management, Hosking Partners, and D E Shaw. In terms of the portfolio weights assigned to each position AlphaOne Capital Partners allocated the biggest weight to FirstCash, Inc. (NASDAQ:FCFS), around 0.36% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, earmarking 0.35 percent of its 13F equity portfolio to FCFS.
Judging by the fact that FirstCash, Inc. (NASDAQ:FCFS) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds who were dropping their positions entirely heading into Q4. Intriguingly, David Harding’s Winton Capital Management said goodbye to the largest stake of the 750 funds followed by Insider Monkey, comprising close to $1.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $1.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to FirstCash, Inc. (NASDAQ:FCFS). These stocks are Silgan Holdings Inc. (NASDAQ:SLGN), Omnicell, Inc. (NASDAQ:OMCL), Neogen Corporation (NASDAQ:NEOG), and CRISPR Therapeutics AG (NASDAQ:CRSP). All of these stocks’ market caps resemble FCFS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLGN | 17 | 210117 | -1 |
| OMCL | 13 | 96313 | 2 |
| NEOG | 16 | 17534 | 1 |
| CRSP | 30 | 297776 | 13 |
| Average | 19 | 155435 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $173 million in FCFS’s case. CRISPR Therapeutics AG (NASDAQ:CRSP) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 13 bullish hedge fund positions. FirstCash, Inc. (NASDAQ:FCFS) is not the least popular stock in this group but hedge fund interest is still below average. 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on FCFS as the stock returned -14.1% during the same time period and outperformed the market by an even larger margin.
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.
