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Should You Buy Eldorado Gold Corp (EGO)?

Abigail Fisher

In this article you are going to find out whether hedge funds think Eldorado Gold Corp (NYSE:EGO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Eldorado Gold Corp (NYSE:EGO) investors should pay attention to an increase in hedge fund sentiment in recent months. EGO was in 14 hedge funds' portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with EGO holdings at the end of the previous quarter. Our calculations also showed that EGO 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). 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 58 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.

[caption id="attachment_25981" align="aligncenter" width="397"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the recent hedge fund action encompassing Eldorado Gold Corp (NYSE:EGO).

How have hedgies been trading Eldorado Gold Corp (NYSE:EGO)?

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EGO over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Eldorado Gold Corp (NYSE:EGO) was held by Renaissance Technologies, which reported holding $50.1 million worth of stock at the end of September. It was followed by Lansdowne Partners with a $29.2 million position. Other investors bullish on the company included Two Sigma Advisors, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Anchor Bolt Capital allocated the biggest weight to Eldorado Gold Corp (NYSE:EGO), around 5.09% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to EGO.

As aggregate interest increased, key money managers have jumped into Eldorado Gold Corp (NYSE:EGO) headfirst. Sprott Asset Management, managed by Eric Sprott, assembled the most valuable position in Eldorado Gold Corp (NYSE:EGO). Sprott Asset Management had $1.1 million invested in the company at the end of the quarter. Jonathan Soros's JS Capital also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Michael Gelband's ExodusPoint Capital, and Paul Tudor Jones's Tudor Investment Corp.

Let's now take a look at hedge fund activity in other stocks similar to Eldorado Gold Corp (NYSE:EGO). We will take a look at Enanta Pharmaceuticals Inc (NASDAQ:ENTA), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), SITE Centers Corp. (NYSE:SITC), and Grupo Financiero Galicia S.A. (NASDAQ:GGAL). This group of stocks' market caps resemble EGO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENTA,18,217411,-3 JBSS,14,63220,-3 SITC,21,47296,-1 GGAL,6,12134,-2 Average,14.75,85015,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $137 million in EGO's case. SITE Centers Corp. (NYSE:SITC) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 6 bullish hedge fund positions. Eldorado Gold Corp (NYSE:EGO) is not the least popular stock in this group but hedge fund interest is still below 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on EGO as the stock returned 49.1% during the second quarter and outperformed the market by an even larger margin.

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

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