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Did Hedge Funds Make The Right Call On The Brink’s Company (BCO) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Brink’s Company (NYSE:BCO) and determine whether hedge funds skillfully traded this stock.

The Brink’s Company (NYSE:BCO) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as OneMain Holdings Inc (NYSE:OMF), Synovus Financial Corp. (NYSE:SNV), and Essent Group Ltd (NYSE:ESNT) to gather more data points. Our calculations also showed that BCO 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.

Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 view the key hedge fund action encompassing The Brink’s Company (NYSE:BCO).

What does smart money think about The Brink’s Company (NYSE:BCO)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in BCO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Brink’s Company (NYSE:BCO) was held by P2 Capital Partners, which reported holding $117.2 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $66.4 million position. Other investors bullish on the company included Ariel Investments, Balyasny Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to The Brink’s Company (NYSE:BCO), around 14.01% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, dishing out 1.61 percent of its 13F equity portfolio to BCO.

Since The Brink’s Company (NYSE:BCO) has faced falling interest from hedge fund managers, logic holds that there was a specific group of fund managers who were dropping their full holdings last quarter. It’s worth mentioning that Mitch Kuflik and Rob Sobel’s Brahman Capital dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at about $42.3 million in stock, and Peter S. Park’s Park West Asset Management was right behind this move, as the fund dropped about $34.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to The Brink’s Company (NYSE:BCO). We will take a look at OneMain Holdings Inc (NYSE:OMF), Synovus Financial Corp. (NYSE:SNV), Essent Group Ltd (NYSE:ESNT), and TriNet Group Inc (NYSE:TNET). This group of stocks’ market valuations resemble BCO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMF 34 221371 -5
SNV 33 228467 -2
ESNT 26 196484 -10
TNET 19 230192 -1
Average 28 219129 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $275 million in BCO’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand TriNet Group Inc (NYSE:TNET) is the least popular one with only 19 bullish hedge fund positions. The Brink’s Company (NYSE:BCO) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately BCO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BCO investors were disappointed as the stock returned -12.2% 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 in 2020.

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