After several sessions of sell-offs, it looks like the market is ready to bounce back at least for one day. All three major index futures are well in the green and crude futures are about 2.5% higher than yesterday’s close. Driving the bullish sentiment today are reports of strong U.S. home price growth and a revised up U.S. GDP.
Among the stocks trending amid the bullish backdrop are Barclays PLC (ADR) (NYSE:BCS), Deutsche Bank AG (USA) (NYSE:DB), HSBC Holdings plc (ADR) (NYSE:HSBC), Anthem Inc (NYSE:ANTM), and CIGNA Corporation (NYSE:CI). In this article, we take a closer look at each company and analyze what the funds tracked by us think about these stocks.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 770 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
Goldman Analysts Quantify Some of the Brexit Impact
European banks Barclays PLC (ADR) (NYSE:BCS), Deutsche Bank AG (USA) (NYSE:DB), and HSBC Holdings plc (ADR) (NYSE:HSBC) are in the news after analysts at Goldman Sachs estimated that European bank profits could fall by $35 billion, or 32 billion euros, through 2018 due to Britain’s decision to leave the EU. The analysts believe British banks will be hurt the most due to lower volumes, fees, and margins, as well as slower capital market activities. Outside of Britain, German banks could be the most affected due to their efficiency. The $35 billion in profits is roughly 11% lower than the baseline earnings estimate if Britain had decided not to leave the EU.
Although British Prime Minister David Cameron hasn’t officially declared an intention to exit the EU yet, most analysts believe his successor will. When that happens, Britain’s capital markets will be less attractive to European businesses due to various barriers and British banks could lose substantial clients and revenue. Although Germany could benefit from the Brexit due to financial activity moving to the country from Britain, German bank profits will likely shrink in aggregate due to their global nature and a potential European/British recession. Of the 766 elite funds we track, 12 funds owned $289.27 million worth of Barclays PLC (ADR) (NYSE:BCS)’s stock, 10 funds amassed $23.98 million worth of Deutsche Bank AG (USA) (NYSE:DB)’s shares, and 14 top funds owned shares of HSBC Holdings plc (ADR) (NYSE:HSBC) worth $490.62 million in aggregate at the end of the first quarter. Given that some bank stocks have sold off by 20% to 40% on the Brexit decision, Goldman’s 11% profit cut seems tame compared to the market’s pricing.
On the next page, we examine Anthem, and CIGNA Corporation.