Were Expert Investors Right About Equifax Inc. (EFX)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Equifax Inc. (NYSE:EFX) and determine whether hedge funds had an edge regarding this stock.

Equifax Inc. (NYSE:EFX) was in 43 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 42. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EFX investors should pay attention to an increase in enthusiasm from smart money recently. There were 37 hedge funds in our database with EFX positions at the end of the second quarter. Our calculations also showed that EFX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the fresh hedge fund action encompassing Equifax Inc. (NYSE:EFX).

William Von Mueffling of Cantillon Capital Management

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

At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in EFX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Generation Investment Management held the most valuable stake in Equifax Inc. (NYSE:EFX), which was worth $720.3 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $540 million worth of shares. Ako Capital, Melvin Capital Management, and Farallon 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 Ako Capital allocated the biggest weight to Equifax Inc. (NYSE:EFX), around 4.05% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, dishing out 3.68 percent of its 13F equity portfolio to EFX.

As one would reasonably expect, specific money managers have jumped into Equifax Inc. (NYSE:EFX) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, created the largest call position in Equifax Inc. (NYSE:EFX). Melvin Capital Management had $177.4 million invested in the company at the end of the quarter. Panayotis Takis Sparaggis’s Alkeon Capital Management also made a $121.6 million investment in the stock during the quarter. The other funds with brand new EFX positions are Doug Silverman and Alexander Klabin’s Senator Investment Group, Jinghua Yan’s TwinBeech Capital, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Equifax Inc. (NYSE:EFX) but similarly valued. These stocks are McKesson Corporation (NYSE:MCK), Public Service Enterprise Group Incorporated (NYSE:PEG), Suncor Energy Inc. (NYSE:SU), Arthur J. Gallagher & Co. (NYSE:AJG), American Water Works Company, Inc. (NYSE:AWK), Nokia Corporation (NYSE:NOK), and Phillips 66 (NYSE:PSX). All of these stocks’ market caps match EFX’s market cap.

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As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $1028 million. That figure was $3360 million in EFX’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 22 bullish hedge fund positions. Equifax Inc. (NYSE:EFX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EFX is 76.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EFX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EFX were disappointed as the stock returned -5.3% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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