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Hedge Funds Dumping The Geo Group, Inc. (GEO)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded The Geo Group, Inc. (NYSE:GEO) based on those filings.

The Geo Group, Inc. (NYSE:GEO) was in 14 hedge funds’ portfolios at the end of March. GEO shareholders have witnessed a decrease in hedge fund sentiment recently. There were 22 hedge funds in our database with GEO holdings at the end of the previous quarter. Our calculations also showed that GEO 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 easiest car rental companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the key hedge fund action encompassing The Geo Group, Inc. (NYSE:GEO).

How have hedgies been trading The Geo Group, Inc. (NYSE:GEO)?

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in GEO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GEO A Good Stock To Buy?

Among these funds, Arrowstreet Capital held the most valuable stake in The Geo Group, Inc. (NYSE:GEO), which was worth $27.4 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $26.2 million worth of shares. Citadel Investment Group, Intrinsic Edge Capital, and Two Sigma Advisors 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 Capital Growth Management allocated the biggest weight to The Geo Group, Inc. (NYSE:GEO), around 3.68% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.9 percent of its 13F equity portfolio to GEO.

Due to the fact that The Geo Group, Inc. (NYSE:GEO) has faced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds that slashed their entire stakes by the end of the first quarter. Intriguingly, Paul Tudor Jones’s Tudor Investment Corp cut the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $1.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $1 million worth. These transactions are interesting, as total hedge fund interest dropped by 8 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to The Geo Group, Inc. (NYSE:GEO). We will take a look at The Chemours Company (NYSE:CC), Monro Inc (NASDAQ:MNRO), LivePerson, Inc. (NASDAQ:LPSN), and M.D.C. Holdings, Inc. (NYSE:MDC). This group of stocks’ market values match GEO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CC 32 239323 3
MNRO 14 87142 -4
LPSN 15 96549 -8
MDC 14 61401 -3
Average 18.75 121104 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $83 million in GEO’s case. The Chemours Company (NYSE:CC) is the most popular stock in this table. On the other hand Monro Inc (NASDAQ:MNRO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks The Geo Group, Inc. (NYSE:GEO) is even less popular than MNRO. Hedge funds dodged a bullet by taking a bearish stance towards GEO. 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 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately GEO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GEO investors were disappointed as the stock returned -2.6% during the second quarter (through June 25th) 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.