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Is CFG A Good Stock To Buy According To Hedge Funds?

Asma UL Husna
·6 min read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Citizens Financial Group Inc (NYSE:CFG) based on that data.

Is CFG a good stock to buy? Citizens Financial Group Inc (NYSE:CFG) shareholders have witnessed a decrease in support from the world's most elite money managers lately. Citizens Financial Group Inc (NYSE:CFG) was in 36 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 67. There were 47 hedge funds in our database with CFG holdings at the end of June. Our calculations also showed that CFG 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.

David Siegel of Two Sigma Advisors
David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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 15 best blue chip stocks to buy 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. Now we're going to take a peek at the new hedge fund action encompassing Citizens Financial Group Inc (NYSE:CFG).

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

Heading into the fourth quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. By comparison, 43 hedge funds held shares or bullish call options in CFG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Citizens Financial Group Inc (NYSE:CFG). Arrowstreet Capital has a $121.2 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $55.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Steve Cohen's Point72 Asset Management, John Overdeck and David Siegel's Two Sigma Advisors and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Citizens Financial Group Inc (NYSE:CFG), around 6.52% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, designating 3.35 percent of its 13F equity portfolio to CFG.

Because Citizens Financial Group Inc (NYSE:CFG) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few funds who were dropping their full holdings last quarter. Interestingly, Ricky Sandler's Eminence Capital sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising about $114.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $22.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 11 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Citizens Financial Group Inc (NYSE:CFG). We will take a look at The Boston Beer Company Inc (NYSE:SAM), RPM International Inc. (NYSE:RPM), MGM Resorts International (NYSE:MGM), Avalara, Inc. (NYSE:AVLR), Avery Dennison Corporation (NYSE:AVY), NICE Ltd (NASDAQ:NICE), and Omnicom Group Inc. (NYSE:OMC). This group of stocks' market valuations are closest to CFG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAM,36,1212955,4 RPM,26,122123,0 MGM,41,1236673,9 AVLR,46,1330456,9 AVY,16,117745,-13 NICE,26,706151,7 OMC,34,528197,3 Average,32.1,750614,2.7 [/table]

View table here if you experience formatting issues.

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 $751 million. That figure was $467 million in CFG's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 16 bullish hedge fund positions. Citizens Financial Group Inc (NYSE:CFG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CFG is 43.5. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on CFG as the stock returned 37.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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