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. Keeping this in mind let's see whether Mr. Cooper Group Inc. (NASDAQ:COOP) represents 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.
Mr. Cooper Group Inc. (NASDAQ:COOP) investors should pay attention to a decrease in hedge fund interest lately. Our calculations also showed that COOP 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 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 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 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.
[caption id="attachment_30614" align="aligncenter" width="397"] Howard Marks of Oaktree Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. 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. With all of this in mind let's go over the fresh hedge fund action surrounding Mr. Cooper Group Inc. (NASDAQ:COOP).
What does smart money think about Mr. Cooper Group Inc. (NASDAQ:COOP)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in COOP a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Diamond Hill Capital held the most valuable stake in Mr. Cooper Group Inc. (NASDAQ:COOP), which was worth $83.9 million at the end of the third quarter. On the second spot was Greywolf Capital Management which amassed $49.4 million worth of shares. OCO Capital Partners, Omega Advisors, and Oaktree Capital Management 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 Greywolf Capital Management allocated the biggest weight to Mr. Cooper Group Inc. (NASDAQ:COOP), around 53.08% of its 13F portfolio. OCO Capital Partners is also relatively very bullish on the stock, dishing out 41.59 percent of its 13F equity portfolio to COOP.
Because Mr. Cooper Group Inc. (NASDAQ:COOP) has witnessed declining sentiment from hedge fund managers, it's safe to say that there was a specific group of hedge funds that slashed their positions entirely in the third quarter. It's worth mentioning that David Tepper's Appaloosa Management LP dumped the biggest position of all the hedgies monitored by Insider Monkey, worth about $6.9 million in stock. Daniel Beltzman and Gergory Smith's fund, Birch Run Capital, also dumped its stock, about $3.5 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Mr. Cooper Group Inc. (NASDAQ:COOP) but similarly valued. We will take a look at Banco BBVA Argentina S.A. (NYSE:BBAR), Signet Jewelers Limited (NYSE:SIG), Revlon Inc (NYSE:REV), and Everi Holdings Inc (NYSE:EVRI). This group of stocks' market values are closest to COOP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBAR,9,14546,-1 SIG,22,188502,5 REV,38,291977,3 EVRI,30,298726,7 Average,24.75,198438,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $280 million in COOP's case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Banco BBVA Argentina S.A. (NYSE:BBAR) is the least popular one with only 9 bullish hedge fund positions. Mr. Cooper Group Inc. (NASDAQ:COOP) 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately COOP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); COOP investors were disappointed as the stock returned -29.7% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market 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.