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Did Hedge Funds Make The Right Call On New York Community Bancorp, Inc. (NYCB) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards New York Community Bancorp, Inc. (NYSE:NYCB) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is New York Community Bancorp, Inc. (NYSE:NYCB) a buy, sell, or hold? Investors who are in the know were getting less optimistic. The number of bullish hedge fund bets shrunk by 5 lately. Our calculations also showed that NYCB 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the latest hedge fund action encompassing New York Community Bancorp, Inc. (NYSE:NYCB).

What does smart money think about New York Community Bancorp, Inc. (NYSE:NYCB)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NYCB over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in New York Community Bancorp, Inc. (NYSE:NYCB), which was worth $74.7 million at the end of the third quarter. On the second spot was Kahn Brothers which amassed $49 million worth of shares. Adage Capital Management, Renaissance Technologies, and Winton Capital Management 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 Kahn Brothers allocated the biggest weight to New York Community Bancorp, Inc. (NYSE:NYCB), around 8.96% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, dishing out 5.32 percent of its 13F equity portfolio to NYCB.

Due to the fact that New York Community Bancorp, Inc. (NYSE:NYCB) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that elected to cut their positions entirely heading into Q4. Intriguingly, Noam Gottesman’s GLG Partners dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, worth close to $8.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $5.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to New York Community Bancorp, Inc. (NYSE:NYCB). We will take a look at CoreSite Realty Corp (NYSE:COR), Chegg Inc (NYSE:CHGG), Robert Half International Inc. (NYSE:RHI), and Flowers Foods, Inc. (NYSE:FLO). All of these stocks’ market caps are similar to NYCB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COR 23 267395 2
CHGG 34 302599 -5
RHI 26 247265 3
FLO 27 227639 7
Average 27.5 261225 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $193 million in NYCB’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand CoreSite Realty Corp (NYSE:COR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks New York Community Bancorp, Inc. (NYSE:NYCB) is even less popular than COR. Hedge funds dodged a bullet by taking a bearish stance towards NYCB. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately NYCB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NYCB investors were disappointed as the stock returned 10.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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