Were Hedge Funds Right About Green Dot Corporation (GDOT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Green Dot Corporation (NYSE:GDOT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Green Dot Corporation (NYSE:GDOT) a buy right now? Money managers were in a bearish mood. The number of long hedge fund positions fell by 1 in recent months. Our calculations also showed that GDOT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). GDOT was in 22 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with GDOT positions at the end of the previous quarter.

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

If you’d ask most investors, hedge funds are perceived as unimportant, old investment tools of years past. While there are over 8000 funds trading today, Our experts hone in on the crème de la crème of this club, about 850 funds. Most estimates calculate that this group of people direct the lion’s share of the hedge fund industry’s total asset base, and by tracking their finest stock picks, Insider Monkey has revealed a few investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Jeffrey Smith of Starboard Value LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a look at the latest hedge fund action regarding Green Dot Corporation (NYSE:GDOT).

What have hedge funds been doing with Green Dot Corporation (NYSE:GDOT)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in GDOT a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Green Dot Corporation (NYSE:GDOT) was held by Starboard Value LP, which reported holding $125.9 million worth of stock at the end of September. It was followed by No Street Capital with a $55.6 million position. Other investors bullish on the company included Scopia Capital, Coatue Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position No Street Capital allocated the biggest weight to Green Dot Corporation (NYSE:GDOT), around 11.21% of its 13F portfolio. Parian Global Management is also relatively very bullish on the stock, designating 5.97 percent of its 13F equity portfolio to GDOT.

Judging by the fact that Green Dot Corporation (NYSE:GDOT) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers who sold off their positions entirely by the end of the first quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $19.5 million in stock, and John Petry’s Sessa Capital was right behind this move, as the fund dumped about $13 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Green Dot Corporation (NYSE:GDOT) but similarly valued. These stocks are Brooge Energy Limited (NASDAQ:BROG), American Eagle Outfitters Inc. (NYSE:AEO), Corecivic Inc. (NYSE:CXW), and Main Street Capital Corporation (NYSE:MAIN). This group of stocks’ market caps are closest to GDOT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $377 million in GDOT’s case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Brooge Energy Limited (NASDAQ:BROG) is the least popular one with only 7 bullish hedge fund positions. Green Dot Corporation (NYSE:GDOT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on GDOT as the stock returned 93.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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