Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Equifax Inc. (NYSE:EFX) changed recently.
Is Equifax Inc. (NYSE:EFX) a buy here? Hedge funds are reducing their bets on the stock. The number of long hedge fund bets fell by 8 lately. Our calculations also showed that EFX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). EFX was in 26 hedge funds' portfolios at the end of September. There were 34 hedge funds in our database with EFX holdings at the end of the previous quarter.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_29562" align="alignnone" width="600"] Stephen Mandel of Lone Pine Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's take a gander at the key hedge fund action encompassing Equifax Inc. (NYSE:EFX).
What have hedge funds been doing with Equifax Inc. (NYSE:EFX)?
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in EFX a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Lone Pine Capital held the most valuable stake in Equifax Inc. (NYSE:EFX), which was worth $431.7 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $330.4 million worth of shares. Generation Investment Management, Egerton Capital Limited, 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 Clearfield Capital allocated the biggest weight to Equifax Inc. (NYSE:EFX), around 13.05% of its 13F portfolio. Harbor Spring Capital is also relatively very bullish on the stock, setting aside 4.54 percent of its 13F equity portfolio to EFX.
Due to the fact that Equifax Inc. (NYSE:EFX) has witnessed falling interest from hedge fund managers, logic holds that there was a specific group of fund managers that slashed their positions entirely heading into Q4. It's worth mentioning that James Parsons's Junto Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, comprising close to $78.1 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund cut about $10.6 million worth. These moves are important to note, as total hedge fund interest dropped by 8 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Equifax Inc. (NYSE:EFX). We will take a look at DISH Network Corp. (NASDAQ:DISH), HEICO Corporation (NYSE:HEI), ZTO Express (Cayman) Inc. (NYSE:ZTO), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). All of these stocks' market caps resemble EFX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DISH,36,1531248,4 HEI,42,1148598,7 ZTO,19,505301,4 CHKP,20,407935,-4 Average,29.25,898271,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $898 million. That figure was $1729 million in EFX's case. HEICO Corporation (NYSE:HEI) 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 19 bullish hedge fund positions. Equifax Inc. (NYSE:EFX) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. A small number of hedge funds were also right about betting on EFX as the stock returned 52.3% in 2019 and outclassed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.