Is Rent-A-Center Inc (NASDAQ:RCII) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Rent-A-Center Inc (NASDAQ:RCII) the right pick for your portfolio? Hedge funds are taking a pessimistic view. The number of bullish hedge fund bets were cut by 3 in recent months. Our calculations also showed that RCII isn't among the 30 most popular stocks among hedge funds (see the video below). RCII was in 18 hedge funds' portfolios at the end of June. There were 21 hedge funds in our database with RCII positions at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the recent hedge fund action encompassing Rent-A-Center Inc (NASDAQ:RCII).
How have hedgies been trading Rent-A-Center Inc (NASDAQ:RCII)?
At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in RCII a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Engaged Capital held the most valuable stake in Rent-A-Center Inc (NASDAQ:RCII), which was worth $142 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $109.8 million worth of shares. Moreover, LMR Partners, Cloverdale Capital Management, and SG Capital Management were also bullish on Rent-A-Center Inc (NASDAQ:RCII), allocating a large percentage of their portfolios to this stock.
Since Rent-A-Center Inc (NASDAQ:RCII) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of funds that decided to sell off their positions entirely in the second quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $10.6 million in stock. Lee Ainslie's fund, Maverick Capital, also dropped its stock, about $8.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Rent-A-Center Inc (NASDAQ:RCII) but similarly valued. These stocks are Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), Opko Health Inc. (NASDAQ:OPK), Arcos Dorados Holdings Inc. (NYSE:ARCO), and Sally Beauty Holdings, Inc. (NYSE:SBH). This group of stocks' market valuations match RCII's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCO,32,453766,21 OPK,14,13007,1 ARCO,14,123488,-4 SBH,20,117843,1 Average,20,177026,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $416 million in RCII's case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Opko Health Inc. (NASDAQ:OPK) is the least popular one with only 14 bullish hedge fund positions. Rent-A-Center Inc (NASDAQ:RCII) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RCII wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RCII investors were disappointed as the stock returned -2.2% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.