Is AX A Good Stock To Buy Now?

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 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th, 2020. In this article we are going to take a look at smart money sentiment towards Axos Financial, Inc. (NYSE:AX).

Is AX a good stock to buy now? Axos Financial, Inc. (NYSE:AX) shareholders have witnessed a decrease in hedge fund sentiment recently. Axos Financial, Inc. (NYSE:AX) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 17. There were 17 hedge funds in our database with AX positions at the end of the second quarter. Our calculations also showed that AX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 66 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.

Matthew Lindenbaum of Basswood Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing Axos Financial, Inc. (NYSE:AX).

Do Hedge Funds Think AX Is A Good Stock To Buy Now?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the second quarter of 2020. By comparison, 15 hedge funds held shares or bullish call options in AX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Basswood Capital held the most valuable stake in Axos Financial, Inc. (NYSE:AX), which was worth $17.4 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $7.1 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Voss Capital 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 Voss Capital allocated the biggest weight to Axos Financial, Inc. (NYSE:AX), around 2.26% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 1.45 percent of its 13F equity portfolio to AX.

Seeing as Axos Financial, Inc. (NYSE:AX) has experienced declining sentiment from hedge fund managers, we can see that there exists a select few fund managers who were dropping their entire stakes last quarter. Intriguingly, Paul Tudor Jones’s Tudor Investment Corp sold off the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $0.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Axos Financial, Inc. (NYSE:AX) but similarly valued. We will take a look at Mednax Inc. (NYSE:MD), SITE Centers Corp. (NYSE:SITC), Chesapeake Utilities Corporation (NYSE:CPK), Tri Continental Corporation (NYSE:TY), GreenTree Hospitality Group Ltd. (NYSE:GHG), Northwest Natural Holding Company (NYSE:NWN), and Belden Inc. (NYSE:BDC). This group of stocks’ market valuations are similar to AX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $48 million in AX’s case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 2 bullish hedge fund positions. Axos Financial, Inc. (NYSE:AX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AX is 62. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on AX as the stock returned 52.1% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.