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Were Hedge Funds Right About Selling EZCORP Inc (EZPW) Heading Into Q4?

Asma UL Husna

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

EZCORP Inc (NASDAQ:EZPW) was in 18 hedge funds' portfolios at the end of the third quarter of 2019. EZPW investors should pay attention to a decrease in activity from the world's largest hedge funds recently. There were 21 hedge funds in our database with EZPW positions at the end of the previous quarter. Our calculations also showed that EZPW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_224708" align="aligncenter" width="464"] New York Stock Exchange[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the key hedge fund action surrounding EZCORP Inc (NASDAQ:EZPW).

What does smart money think about EZCORP Inc (NASDAQ:EZPW)?

At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in EZPW a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Bryant Regan's Lafitte Capital Management has the biggest position in EZCORP Inc (NASDAQ:EZPW), worth close to $34.9 million, comprising 19.9% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $15.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions consist of Constantinos J. Christofilis's Archon Capital Management, George Baxter's Sabrepoint Capital and Jerome L. Simon's Lonestar Capital Management. In terms of the portfolio weights assigned to each position Lafitte Capital Management allocated the biggest weight to EZCORP Inc (NASDAQ:EZPW), around 19.87% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, designating 2.59 percent of its 13F equity portfolio to EZPW.

Because EZCORP Inc (NASDAQ:EZPW) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that elected to cut their positions entirely in the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group dropped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth close to $0.9 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as EZCORP Inc (NASDAQ:EZPW) but similarly valued. These stocks are X Financial (NYSE:XYF), West Bancorporation, Inc. (NASDAQ:WTBA), Global Indemnity Limited (NASDAQ:GBLI), and Utah Medical Products, Inc. (NASDAQ:UTMD). This group of stocks' market valuations match EZPW's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XYF,2,1574,-1 WTBA,4,9449,0 GBLI,6,25237,0 UTMD,6,34813,0 Average,4.5,17768,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $81 million in EZPW's case. Global Indemnity Limited (NASDAQ:GBLI) is the most popular stock in this table. On the other hand X Financial (NYSE:XYF) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks EZCORP Inc (NASDAQ:EZPW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EZPW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EZPW were disappointed as the stock returned -20.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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