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Is FRC A Good Stock To Buy Now?

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Asma UL Husna
·6 min read
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In this article you are going to find out whether hedge funds think First Republic Bank (NYSE:FRC) 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.

Is FRC a good stock to buy now? Prominent investors were cutting their exposure. The number of long hedge fund positions were trimmed by 6 recently. First Republic Bank (NYSE:FRC) was in 31 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 37. Our calculations also showed that FRC 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.

In the eyes of most shareholders, hedge funds are perceived as unimportant, old investment tools of yesteryear. While there are greater than 8000 funds trading today, We choose to focus on the moguls of this club, approximately 850 funds. Most estimates calculate that this group of people direct the lion's share of all hedge funds' total capital, and by observing their unrivaled stock picks, Insider Monkey has brought to light several investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Ric Dillon Diamond Hill Capital
Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let's take a look at the latest hedge fund action surrounding First Republic Bank (NYSE:FRC).

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

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FRC over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of First Republic Bank (NYSE:FRC), with a stake worth $557.5 million reported as of the end of September. Trailing Select Equity Group was Diamond Hill Capital, which amassed a stake valued at $292.8 million. Citadel Investment Group, Junto Capital Management, and Osterweis Capital Management 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 Select Equity Group allocated the biggest weight to First Republic Bank (NYSE:FRC), around 2.74% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, dishing out 2.03 percent of its 13F equity portfolio to FRC.

Due to the fact that First Republic Bank (NYSE:FRC) has faced falling interest from hedge fund managers, it's easy to see that there were a few hedgies that decided to sell off their positions entirely last quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $14 million in stock. Donald Sussman's fund, Paloma Partners, also dumped its stock, about $5.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let's check out hedge fund activity in other stocks similar to First Republic Bank (NYSE:FRC). These stocks are Zscaler, Inc. (NASDAQ:ZS), Suncor Energy Inc. (NYSE:SU), PG&E Corporation (NYSE:PCG), Ameriprise Financial, Inc. (NYSE:AMP), Keysight Technologies Inc (NYSE:KEYS), Laboratory Corp. of America Holdings (NYSE:LH), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks' market values resemble FRC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZS,26,489528,-9 SU,22,559413,-7 PCG,76,6685918,-16 AMP,29,618831,1 KEYS,36,364966,-11 LH,57,1749727,5 MKTX,34,941566,1 Average,40,1629993,-5.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1630 million. That figure was $1222 million in FRC's case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Suncor Energy Inc. (NYSE:SU) is the least popular one with only 22 bullish hedge fund positions. First Republic Bank (NYSE:FRC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FRC is 32.5. 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. A small number of hedge funds were also right about betting on FRC as the stock returned 24.7% since the end of the third quarter (through 12/18) 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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