Is FRC Stock A Buy or Sell?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards First Republic Bank (NYSE:FRC) changed recently.

Is FRC stock a buy? Prominent investors were in a bullish mood. The number of long hedge fund bets increased by 3 recently. First Republic Bank (NYSE:FRC) was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 37. Our calculations also showed that FRC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 31 hedge funds in our database with FRC holdings at the end of September.

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 124 percentage points since March 2017 (see the details here).

James Dondero of Highland Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. With all of this in mind we’re going to take a gander at the recent hedge fund action encompassing First Republic Bank (NYSE:FRC).

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

At the end of December, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FRC over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Robert Joseph Caruso’s Select Equity Group has the largest position in First Republic Bank (NYSE:FRC), worth close to $673.6 million, comprising 2.8% of its total 13F portfolio. The second most bullish fund manager is Diamond Hill Capital, led by Ric Dillon, holding a $367.5 million position; 1.7% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish encompass Ken Griffin’s Citadel Investment Group, James Parsons’s Junto Capital Management and John Osterweis’s Osterweis Capital Management. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to First Republic Bank (NYSE:FRC), around 2.77% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, setting aside 2.05 percent of its 13F equity portfolio to FRC.

Consequently, key hedge funds were breaking ground themselves. Bridgewater Associates, managed by Ray Dalio, initiated the largest position in First Republic Bank (NYSE:FRC). Bridgewater Associates had $3.7 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $3.3 million position during the quarter. The other funds with brand new FRC positions are James Dondero’s Highland Capital Management, Joel Greenblatt’s Gotham Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as First Republic Bank (NYSE:FRC) but similarly valued. These stocks are Hormel Foods Corporation (NYSE:HRL), D.R. Horton, Inc. (NYSE:DHI), Weyerhaeuser Co. (NYSE:WY), ZTO Express (Cayman) Inc. (NYSE:ZTO), PG&E Corporation (NYSE:PCG), Verisign, Inc. (NASDAQ:VRSN), and Keysight Technologies Inc (NYSE:KEYS). This group of stocks’ market values match FRC’s market value.

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As you can see these stocks had an average of 41.7 hedge funds with bullish positions and the average amount invested in these stocks was $2450 million. That figure was $1270 million in FRC’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 17 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FRC is 52.9. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. A small number of hedge funds were also right about betting on FRC as the stock returned 14.4% since the end of the fourth quarter (through 4/1) and outperformed the market by an even larger margin.

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