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Did Hedge Funds Make The Right Call On Mr. Cooper Group Inc. (COOP) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMr. Cooper Group Inc. (NASDAQ:COOP) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Mr. Cooper Group Inc. (NASDAQ:COOP) a bargain? Investors who are in the know were getting less optimistic. The number of long hedge fund positions retreated by 4 in recent months. Our calculations also showed that COOP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s view the key hedge fund action regarding Mr. Cooper Group Inc. (NASDAQ:COOP).

How have hedgies been trading Mr. Cooper Group Inc. (NASDAQ:COOP)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COOP over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Diamond Hill Capital, managed by Ric Dillon, holds the largest position in Mr. Cooper Group Inc. (NASDAQ:COOP). Diamond Hill Capital has a $48.3 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Omega Advisors, managed by Leon Cooperman, which holds a $29.2 million position; 3.8% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions encompass Jonathan Savitz’s Greywolf Capital Management, Eric Schneider’s OCO Capital Partners and Howard Marks’s Oaktree Capital Management. 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 54.88% of its 13F portfolio. OCO Capital Partners is also relatively very bullish on the stock, setting aside 26.01 percent of its 13F equity portfolio to COOP.

Seeing as Mr. Cooper Group Inc. (NASDAQ:COOP) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers that decided to sell off their full holdings by the end of the first quarter. Interestingly, Renaissance Technologies cut the biggest stake of the 750 funds watched by Insider Monkey, worth an estimated $1.7 million in stock, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors was right behind this move, as the fund said goodbye to about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the first 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. These stocks are Nordic American Tankers Ltd (NYSE:NAT), Photronics, Inc. (NASDAQ:PLAB), PAE Incorporated (NASDAQ:PAE), and BRP Group, Inc. (NASDAQ:BRP). All of these stocks’ market caps are similar to COOP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NAT 12 25618 -2
PLAB 22 89664 1
PAE 21 124295 9
BRP 2 9815 -6
Average 14.25 62348 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $178 million in COOP’s case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand BRP Group, Inc. (NASDAQ:BRP) is the least popular one with only 2 bullish hedge fund positions. Mr. Cooper Group Inc. (NASDAQ:COOP) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on COOP as the stock returned 83.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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