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Is HRB Stock A Buy or Sell?

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·6 min read
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  • HRB

In this article we will take a look at whether hedge funds think H&R Block, Inc. (NYSE:HRB) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is HRB stock a buy? Money managers were selling. The number of bullish hedge fund bets were trimmed by 1 in recent months. H&R Block, Inc. (NYSE:HRB) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 44. Our calculations also showed that HRB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Now we're going to take a peek at the latest hedge fund action encompassing H&R Block, Inc. (NYSE:HRB).

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

At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HRB over the last 22 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in H&R Block, Inc. (NYSE:HRB). D E Shaw has a $71.5 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $41.7 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Ken Griffin's Citadel Investment Group, Israel Englander's Millennium Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to H&R Block, Inc. (NYSE:HRB), around 1.28% of its 13F portfolio. Rings Capital Management is also relatively very bullish on the stock, setting aside 0.72 percent of its 13F equity portfolio to HRB.

Seeing as H&R Block, Inc. (NYSE:HRB) has faced falling interest from the smart money, logic holds that there exists a select few hedgies who sold off their full holdings by the end of the fourth quarter. It's worth mentioning that Clint Carlson's Carlson Capital cut the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $28.8 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund said goodbye to about $3.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the fourth quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as H&R Block, Inc. (NYSE:HRB) but similarly valued. These stocks are FirstCash, Inc. (NASDAQ:FCFS), Rogers Corporation (NYSE:ROG), Six Flags Entertainment Corp (NYSE:SIX), Energizer Holdings, Inc. (NYSE:ENR), Mercury General Corporation (NYSE:MCY), NuVasive, Inc. (NASDAQ:NUVA), and PJT Partners Inc (NYSE:PJT). All of these stocks' market caps match HRB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCFS,17,160820,-4 ROG,20,140673,1 SIX,41,941726,4 ENR,26,170004,-2 MCY,18,159104,-3 NUVA,25,504270,-1 PJT,22,87241,6 Average,24.1,309120,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $250 million in HRB's case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 17 bullish hedge fund positions. H&R Block, Inc. (NYSE:HRB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HRB is 32.2. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on HRB as the stock returned 39.5% since the end of the fourth quarter (through 4/19) 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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