Does Hope Bancorp, Inc. (NASDAQ:HOPE) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Hope Bancorp, Inc. (NASDAQ:HOPE) has experienced a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that HOPE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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 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.
[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the recent hedge fund action regarding Hope Bancorp, Inc. (NASDAQ:HOPE).
Hedge fund activity in Hope Bancorp, Inc. (NASDAQ:HOPE)
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HOPE over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Hope Bancorp, Inc. (NASDAQ:HOPE), which was worth $41.2 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $8.5 million worth of shares. Renaissance Technologies, GLG Partners, 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 Pzena Investment Management allocated the biggest weight to Hope Bancorp, Inc. (NASDAQ:HOPE), around 0.22% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to HOPE.
Judging by the fact that Hope Bancorp, Inc. (NASDAQ:HOPE) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedge funds that decided to sell off their positions entirely by the end of the third quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, comprising about $0.4 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund dropped about $0.4 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Hope Bancorp, Inc. (NASDAQ:HOPE). These stocks are Dril-Quip, Inc. (NYSE:DRQ), WillScot Corporation (NASDAQ:WSC), Hostess Brands, Inc. (NASDAQ:TWNK), and BancFirst Corporation (NASDAQ:BANF). This group of stocks' market valuations are similar to HOPE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRQ,18,160339,0 WSC,24,213487,1 TWNK,31,291630,5 BANF,9,46666,0 Average,20.5,178031,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $69 million in HOPE's case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 9 bullish hedge fund positions. Hope Bancorp, Inc. (NASDAQ:HOPE) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HOPE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HOPE investors were disappointed as the stock returned 2.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.