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Why First Republic Bank (FRC) Stock is a Compelling Investment Case

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Alex Smith
·3 min read
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Ensemble Capital recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 11.60% for the third quarter, outperforming its benchmark, the S&P 500 Index which returned 8.93% in the same quarter. You should check out Ensemble Fund's top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Ensemble Capital highlighted a few stocks and First Republic Bank (NYSE:FRC) is one of them. First Republic Bank (NYSE:FRC) engages in the provision of private banking, business banking, real estate lending, and wealth management. Year-to-date, First Republic Bank (NYSE:FRC) stock gained 6.2% and on October 9th it had a closing price of $123.72. Here is what Ensemble Capital said:

"First Republic: Despite the pandemic, First Republic has continued to see strong growth in new deposits and loans. Considered one of the best run banks in the country with one of the most conservative loan underwriting policies, the bank is facing minimal risk related to its loan book. But the extraordinary actions by the Federal Reserve has lowered the amount of money the company is able to generate from its client relationships by lower their “net interest margin”. Despite this, the stock fully recovered back in June to pre-pandemic price levels, but declined again in the third quarter as the market began to doubt the Fed’s commitment to spurring inflation and getting the economy back on a long term path of strong growth, hitting their inflation target, and seeing interest rates return to higher levels. Yet the uniqueness of First Republic vs its big bank peers is apparent when you note that on a year to date basis the stock is down just 7% while the KBW bank index, made up of banks such as JP Morgan, Bank of America, Wells Fargo as well as regional banks, is down 34%."

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In Q2 2020, the number of bullish hedge fund positions on First Republic Bank (NYSE:FRC) stock increased by about 32% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with FRC's growth potential. Our calculations showed that First Republic Bank (NYSE:FRC) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 enewsletter below to receive our stories in your inbox:

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