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Hedge Funds Dipping Their Toes Back Into Synchrony Financial (SYF)

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Synchrony Financial (NYSE:SYF) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Synchrony Financial (NYSE:SYF) worth your attention right now? The best stock pickers were turning bullish. The number of bullish hedge fund positions inched up by 9 recently. Synchrony Financial (NYSE:SYF) was in 46 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 82. Our calculations also showed that SYF 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.

At the moment there are many tools stock traders put to use to analyze stocks. Two of the most under-the-radar tools are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outclass the S&P 500 by a significant margin (see the details here).

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital 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. 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. 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. With all of this in mind we’re going to review the new hedge fund action surrounding Synchrony Financial (NYSE:SYF).

How are hedge funds trading Synchrony Financial (NYSE:SYF)?

At second quarter’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in SYF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SYF A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in Synchrony Financial (NYSE:SYF), which was worth $446 million at the end of the third quarter. On the second spot was Southpoint Capital Advisors which amassed $221.6 million worth of shares. PAR Capital Management, HG Vora Capital Management, and Arrowstreet Capital 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 HG Vora Capital Management allocated the biggest weight to Synchrony Financial (NYSE:SYF), around 8.47% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, earmarking 5.53 percent of its 13F equity portfolio to SYF.

As industrywide interest jumped, key hedge funds have jumped into Synchrony Financial (NYSE:SYF) headfirst. HG Vora Capital Management, managed by Parag Vora, established the largest position in Synchrony Financial (NYSE:SYF). HG Vora Capital Management had $94.2 million invested in the company at the end of the quarter. Scott Ferguson’s Sachem Head Capital also initiated a $73.1 million position during the quarter. The other funds with brand new SYF positions are Brandon Haley’s Holocene Advisors, Dmitry Balyasny’s Balyasny Asset Management, and Anand Parekh’s Alyeska Investment Group.

Let’s check out hedge fund activity in other stocks similar to Synchrony Financial (NYSE:SYF). These stocks are FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), Carnival Corporation (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), Markel Corporation (NYSE:MKL), and SK Telecom Co., Ltd. (NYSE:SKM). This group of stocks’ market caps are closest to SYF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMC 42 548601 3
GLPG 13 151392 -2
MLM 51 1593527 7
CCL 31 362150 0
Z 59 2299780 22
MKL 33 943795 1
SKM 8 129598 3
Average 33.9 861263 4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $861 million. That figure was $1564 million in SYF’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Synchrony Financial (NYSE:SYF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYF is 64.1. 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. This is a slightly positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately SYF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SYF were disappointed as the stock returned 13% during the same time period 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 many of these stocks already outperformed the market so far this year.

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