We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of TowneBank (NASDAQ:TOWN).
TowneBank (NASDAQ:TOWN) investors should pay attention to a decrease in support from the world's most elite money managers lately. TOWN was in 6 hedge funds' portfolios at the end of December. There were 7 hedge funds in our database with TOWN holdings at the end of the previous quarter. Our calculations also showed that TOWN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the fresh hedge fund action surrounding TowneBank (NASDAQ:TOWN).
What does smart money think about TowneBank (NASDAQ:TOWN)?
At the end of the fourth quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TOWN over the last 18 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in TowneBank (NASDAQ:TOWN). Renaissance Technologies has a $34.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which holds a $15.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism comprise Ken Griffin's Citadel Investment Group, and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to TowneBank (NASDAQ:TOWN), around 0.03% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to TOWN.
Since TowneBank (NASDAQ:TOWN) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Ken Griffin's Citadel Investment Group sold off the largest investment of the 750 funds tracked by Insider Monkey, valued at about $0.5 million in stock. Cliff Asness's fund, AQR Capital Management, also dropped its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to TowneBank (NASDAQ:TOWN). These stocks are Banner Corporation (NASDAQ:BANR), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), Papa John's International, Inc. (NASDAQ:PZZA), and The Geo Group, Inc. (NYSE:GEO). This group of stocks' market values resemble TOWN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BANR,12,70714,-3 SFBS,9,11317,1 PZZA,28,352372,3 GEO,22,104432,-1 Average,17.75,134709,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $52 million in TOWN's case. Papa John's International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks TowneBank (NASDAQ:TOWN) is even less popular than SFBS. Hedge funds dodged a bullet by taking a bearish stance towards TOWN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately TOWN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TOWN investors were disappointed as the stock returned -34% during the same time period 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 most of these stocks already outperformed the market so far in 2020. 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.