Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the 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 Synchrony Financial (NYSE:SYF) changed recently.
Is Synchrony Financial (NYSE:SYF) an attractive stock to buy now? Investors who are in the know are betting on the stock. The number of long hedge fund positions inched up by 1 recently. Our calculations also showed that SYF isn't among the 30 most popular stocks among hedge funds. SYF was in 46 hedge funds' portfolios at the end of June. There were 45 hedge funds in our database with SYF positions 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 look at the key hedge fund action regarding Synchrony Financial (NYSE:SYF).
How have hedgies been trading Synchrony Financial (NYSE:SYF)?
At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the first quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in SYF a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Warren Buffett's Berkshire Hathaway has the biggest position in Synchrony Financial (NYSE:SYF), worth close to $721.2 million, comprising 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $472 million position; 0.5% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism include Seth Klarman's Baupost Group, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Paul Reeder and Edward Shapiro's PAR Capital Management.
As one would reasonably expect, some big names have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, established the most valuable call position in Synchrony Financial (NYSE:SYF). Laurion Capital Management had $6.9 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw's D E Shaw, Ronald Hua's Qtron Investments, and Mike Vranos's Ellington.
Let's check out hedge fund activity in other stocks similar to Synchrony Financial (NYSE:SYF). These stocks are Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Ball Corporation (NYSE:BLL), Zimmer Biomet Holdings Inc (NYSE:ZBH), and Agilent Technologies Inc. (NYSE:A). This group of stocks' market values are similar to SYF's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMS,9,9059,2 BLL,27,668641,0 ZBH,42,1424896,7 A,39,1826200,-2 Average,29.25,982199,1.75 [/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 $982 million. That figure was $2515 million in SYF's case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Synchrony Financial (NYSE:SYF) is more popular among hedge funds. 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 SYF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SYF were disappointed as the stock returned -1.1% 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 in Q3. 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.