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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Raymond James Financial, Inc. (NYSE:RJF) and determine whether hedge funds had an edge regarding this stock.
Is Raymond James Financial, Inc. (NYSE:RJF) ready to rally soon? Prominent investors were buying. The number of bullish hedge fund bets improved by 4 recently. Raymond James Financial, Inc. (NYSE:RJF) was in 35 hedge funds' portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RJF 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most investors, hedge funds are viewed as underperforming, old investment tools of the past. While there are over 8000 funds with their doors open today, Our experts hone in on the upper echelon of this group, around 850 funds. Most estimates calculate that this group of people command the lion's share of all hedge funds' total asset base, and by keeping track of their best equity investments, Insider Monkey has identified numerous investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Ricky Sandler of Eminence Capital
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 junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's take a look at the latest hedge fund action encompassing Raymond James Financial, Inc. (NYSE:RJF).
What have hedge funds been doing with Raymond James Financial, Inc. (NYSE:RJF)?
Heading into the third quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RJF over the last 20 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Brave Warrior Capital held the most valuable stake in Raymond James Financial, Inc. (NYSE:RJF), which was worth $151.4 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $79.2 million worth of shares. Fisher Asset Management, East Side Capital (RR Partners), and Fairpointe Capital 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 Brave Warrior Capital allocated the biggest weight to Raymond James Financial, Inc. (NYSE:RJF), around 7.53% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, setting aside 6.41 percent of its 13F equity portfolio to RJF.
With a general bullishness amongst the heavyweights, some big names have jumped into Raymond James Financial, Inc. (NYSE:RJF) headfirst. Fairpointe Capital, managed by Thyra Zerhusen, assembled the most valuable position in Raymond James Financial, Inc. (NYSE:RJF). Fairpointe Capital had $14.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $6.8 million investment in the stock during the quarter. The following funds were also among the new RJF investors: Donald Sussman's Paloma Partners, Michael Gelband's ExodusPoint Capital, and Parvinder Thiara's Athanor Capital.
Let's go over hedge fund activity in other stocks similar to Raymond James Financial, Inc. (NYSE:RJF). We will take a look at Allegion plc (NYSE:ALLE), Quidel Corporation (NASDAQ:QDEL), CenterPoint Energy, Inc. (NYSE:CNP), Annaly Capital Management, Inc. (NYSE:NLY), PPD, Inc. (NASDAQ:PPD), Lamb Weston Holdings, Inc. (NYSE:LW), and Guidewire Software Inc (NYSE:GWRE). All of these stocks' market caps resemble RJF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLE,29,424856,-2 QDEL,32,282861,10 CNP,30,480314,-2 NLY,21,288668,-6 PPD,27,620340,0 LW,25,189982,-4 GWRE,29,1008560,-5 Average,27.6,470797,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $471 million. That figure was $436 million in RJF's case. Quidel Corporation (NASDAQ:QDEL) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Raymond James Financial, Inc. (NYSE:RJF) is more popular among hedge funds. Our overall hedge fund sentiment score for RJF is 89. 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 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately RJF wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RJF were disappointed as the stock returned 10% since the end of the second 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.