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Is USB A Good Stock To Buy Now?

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Abigail Fisher
·6 min read
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In this article you are going to find out whether hedge funds think U.S. Bancorp (NYSE:USB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is USB a good stock to buy now? U.S. Bancorp (NYSE:USB) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 48 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that USB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Mercadolibre Inc (NASDAQ:MELI), Global Payments Inc (NYSE:GPN), and Northrop Grumman Corporation (NYSE:NOC) to gather more data points.

Video: 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 S&P 500 ETFs by more than 66 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 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.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy 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. 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. Keeping this in mind we're going to take a look at the key hedge fund action regarding U.S. Bancorp (NYSE:USB).

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

At third quarter's end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards USB over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of U.S. Bancorp (NYSE:USB), with a stake worth $4730.8 million reported as of the end of September. Trailing Berkshire Hathaway was D1 Capital Partners, which amassed a stake valued at $748 million. Yacktman Asset Management, Citadel Investment Group, and Citadel Investment Group 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 D1 Capital Partners allocated the biggest weight to U.S. Bancorp (NYSE:USB), around 4.38% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 4.13 percent of its 13F equity portfolio to USB.

Since U.S. Bancorp (NYSE:USB) has witnessed bearish sentiment from the smart money, we can see that there were a few hedge funds who were dropping their entire stakes in the third quarter. Intriguingly, Clint Carlson's Carlson Capital dropped the biggest stake of the 750 funds followed by Insider Monkey, worth about $26.1 million in stock. George Soros's fund, Soros Fund Management, also cut its stock, about $22.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as U.S. Bancorp (NYSE:USB) but similarly valued. These stocks are Mercadolibre Inc (NASDAQ:MELI), Global Payments Inc (NYSE:GPN), Northrop Grumman Corporation (NYSE:NOC), Chubb Limited (NYSE:CB), Dollar General Corp. (NYSE:DG), Micron Technology, Inc. (NASDAQ:MU), and Truist Financial Corporation (NYSE:TFC). All of these stocks' market caps match USB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MELI,81,5769607,21 GPN,57,4698299,-9 NOC,42,843121,-5 CB,45,1396414,5 DG,56,1824156,-11 MU,79,4570742,-5 TFC,29,180947,-4 Average,55.6,2754755,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.6 hedge funds with bullish positions and the average amount invested in these stocks was $2755 million. That figure was $6226 million in USB's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Truist Financial Corporation (NYSE:TFC) is the least popular one with only 29 bullish hedge fund positions. U.S. Bancorp (NYSE:USB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for USB is 50.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on USB as the stock returned 25.5% since the end of the third quarter (through 12/8) 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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