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Hedge Funds Have Never Been This Bullish On FirstCash, Inc. (FCFS)

Asma UL Husna
·7 mins 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 second 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 FirstCash, Inc. (NASDAQ:FCFS) based on that data and determine whether they were really smart about the stock.

Is FirstCash, Inc. (NASDAQ:FCFS) undervalued? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets went up by 6 in recent months. FirstCash, Inc. (NASDAQ:FCFS) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FCFS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with FCFS holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Donald Yacktman of Yacktman Asset Management

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we're going to take a look at the key hedge fund action regarding FirstCash, Inc. (NASDAQ:FCFS).

What does smart money think about FirstCash, Inc. (NASDAQ:FCFS)?

Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FCFS over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in FirstCash, Inc. (NASDAQ:FCFS), which was worth $77.2 million at the end of the third quarter. On the second spot was Yacktman Asset Management which amassed $34.1 million worth of shares. Hosking Partners, Marshall Wace LLP, and D E Shaw 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 Yacktman Asset Management allocated the biggest weight to FirstCash, Inc. (NASDAQ:FCFS), around 0.54% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to FCFS.

As aggregate interest increased, specific money managers have jumped into FirstCash, Inc. (NASDAQ:FCFS) headfirst. Yacktman Asset Management, managed by Donald Yacktman, initiated the largest position in FirstCash, Inc. (NASDAQ:FCFS). Yacktman Asset Management had $34.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $6.5 million position during the quarter. The other funds with brand new FCFS positions are Brandon Haley's Holocene Advisors, Benjamin A. Smith's Laurion Capital Management, and Phil Frohlich's Prescott Group Capital Management.

Let's go over hedge fund activity in other stocks similar to FirstCash, Inc. (NASDAQ:FCFS). These stocks are Varonis Systems Inc (NASDAQ:VRNS), Insmed Incorporated (NASDAQ:INSM), MGIC Investment Corporation (NYSE:MTG), NorthWestern Corporation (NASDAQ:NWE), Mantech International Corp (NASDAQ:MANT), White Mountains Insurance Group Ltd (NYSE:WTM), and Avnet, Inc. (NASDAQ:AVT). This group of stocks' market caps are similar to FCFS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRNS,28,604539,8 INSM,30,613700,10 MTG,40,262992,-1 NWE,22,96622,3 MANT,16,29262,-1 WTM,11,116150,-5 AVT,29,553892,5 Average,25.1,325308,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $144 million in FCFS's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand White Mountains Insurance Group Ltd (NYSE:WTM) is the least popular one with only 11 bullish hedge fund positions. FirstCash, Inc. (NASDAQ:FCFS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FCFS is 59. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately FCFS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FCFS investors were disappointed as the stock returned -14.9% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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