How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Euronet Worldwide, Inc. (NASDAQ:EEFT) and determine whether hedge funds had an edge regarding this stock.
Is Euronet Worldwide, Inc. (NASDAQ:EEFT) a buy, sell, or hold? Investors who are in the know were betting on the stock. The number of bullish hedge fund positions went up by 7 recently. Euronet Worldwide, Inc. (NASDAQ:EEFT) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. Our calculations also showed that EEFT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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 precious metals prices. So, we are checking out this junior gold mining stock. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a gander at the key hedge fund action surrounding Euronet Worldwide, Inc. (NASDAQ:EEFT).
How have hedgies been trading Euronet Worldwide, Inc. (NASDAQ:EEFT)?
At second quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards EEFT over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, holds the biggest position in Euronet Worldwide, Inc. (NASDAQ:EEFT). Dorsal Capital Management has a $62.3 million position in the stock, comprising 3.8% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $35.7 million position; 0.1% of its 13F portfolio is allocated to the company. Other peers that are bullish encompass Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Euronet Worldwide, Inc. (NASDAQ:EEFT), around 3.85% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, earmarking 3.16 percent of its 13F equity portfolio to EEFT.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, initiated the largest position in Euronet Worldwide, Inc. (NASDAQ:EEFT). Dorsal Capital Management had $62.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $35.7 million position during the quarter. The other funds with brand new EEFT positions are Ryan Caldwell’s Chiron Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Steve Zheng’s Deepcurrents Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Euronet Worldwide, Inc. (NASDAQ:EEFT) but similarly valued. These stocks are Mirati Therapeutics, Inc. (NASDAQ:MRTX), Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), Skechers USA Inc (NYSE:SKX), Invesco Ltd. (NYSE:IVZ), People’s United Financial, Inc. (NASDAQ:PBCT), and First Industrial Realty Trust, Inc. (NYSE:FR). This group of stocks’ market valuations are closest to EEFT’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $311 million in EEFT’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Dada Nexus Limited (NASDAQ:DADA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Euronet Worldwide, Inc. (NASDAQ:EEFT) is more popular among hedge funds. Our overall hedge fund sentiment score for EEFT is 83.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately EEFT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EEFT were disappointed as the stock returned 7.9% since the end of 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.
Disclosure: None. This article was originally published at Insider Monkey.