Were Hedge Funds Right About U.S. Bancorp (USB)?
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 take a look at whether U.S. Bancorp (NYSE:USB) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is U.S. Bancorp (NYSE:USB) a good stock to buy now? Money managers are turning bullish. The number of long hedge fund bets rose by 3 recently. Our calculations also showed that USB 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). USB was in 50 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 47 hedge funds in our database with USB holdings at the end of the previous quarter.
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_735636" align="aligncenter" width="397"]
Matthew Lindenbaum of Basswood Capital[/caption]
Now we're going to take a peek at the recent hedge fund action surrounding U.S. Bancorp (NYSE:USB).
Hedge fund activity in U.S. Bancorp (NYSE:USB)
At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in USB over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in U.S. Bancorp (NYSE:USB), which was worth $7853.5 million at the end of the third quarter. On the second spot was Yacktman Asset Management which amassed $267.5 million worth of shares. AQR Capital Management, Millennium Management, and Basswood 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 Basswood Capital allocated the biggest weight to U.S. Bancorp (NYSE:USB), around 4.76% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, dishing out 4.14 percent of its 13F equity portfolio to USB.
Consequently, key hedge funds have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, assembled the largest position in U.S. Bancorp (NYSE:USB). Bridgewater Associates had $19.3 million invested in the company at the end of the quarter. Peter Seuss's Prana Capital Management also initiated a $3.5 million position during the quarter. The following funds were also among the new USB investors: John Nevin Jr's Ayrshire Capital Management, Matthew Tewksbury's Stevens Capital Management, and Brandon Haley's Holocene Advisors.
Let's check out hedge fund activity in other stocks similar to U.S. Bancorp (NYSE:USB). These stocks are Lowe's Companies, Inc. (NYSE:LOW), Booking Holdings Inc. (NASDAQ:BKNG), Fidelity National Information Services Inc. (NYSE:FIS), and Sony Corporation (NYSE:SNE). This group of stocks' market values resemble USB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOW,77,5412801,1 BKNG,74,5578745,-13 FIS,105,8073588,10 SNE,26,761509,-1 Average,70.5,4956661,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 70.5 hedge funds with bullish positions and the average amount invested in these stocks was $4957 million. That figure was $8686 million in USB's case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Sony Corporation (NYSE:SNE) is the least popular one with only 26 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. 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 USB wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); USB investors were disappointed as the stock returned -40.4% 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.
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