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Hedge Funds Have Never Been This Bullish On Capital One Financial Corp. (COF)

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 Capital One Financial Corp. (NYSE:COF) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Capital One Financial Corp. (NYSE:COF) shareholders have witnessed an increase in enthusiasm from smart money recently. Capital One Financial Corp. (NYSE:COF) was in 55 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 50 hedge funds in our database with COF holdings at the end of March. Our calculations also showed that COF 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 a large number of gauges investors use to evaluate their stock investments. Some of the most useful gauges are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best money managers can beat the market by a healthy amount (see the details here).

Jeffrey Altman Owl Creek

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a look at the latest hedge fund action encompassing Capital One Financial Corp. (NYSE:COF).

What does smart money think about Capital One Financial Corp. (NYSE:COF)?

Heading into the third quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in COF over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Lone Pine Capital held the most valuable stake in Capital One Financial Corp. (NYSE:COF), which was worth $643.3 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $324.9 million worth of shares. Citadel Investment Group, Antipodes Partners, and Point72 Asset 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 Tegean Capital Management allocated the biggest weight to Capital One Financial Corp. (NYSE:COF), around 12.59% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, dishing out 5.5 percent of its 13F equity portfolio to COF.

With a general bullishness amongst the heavyweights, key money managers have jumped into Capital One Financial Corp. (NYSE:COF) headfirst. Lone Pine Capital, created the most valuable position in Capital One Financial Corp. (NYSE:COF). Lone Pine Capital had $643.3 million invested in the company at the end of the quarter. Jeffrey Altman’s Owl Creek Asset Management also initiated a $26.5 million position during the quarter. The other funds with brand new COF positions are Bill Miller’s Miller Value Partners, Zach Schreiber’s Point State Capital, and Ravi Chopra’s Azora Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Capital One Financial Corp. (NYSE:COF). We will take a look at Amphenol Corporation (NYSE:APH), T. Rowe Price Group, Inc. (NASDAQ:TROW), IDEXX Laboratories, Inc. (NASDAQ:IDXX), Alcon Inc. (NYSE:ALC), CoStar Group Inc (NASDAQ:CSGP), MSCI Inc (NYSE:MSCI), and Marriott International Inc (NASDAQ:MAR). All of these stocks’ market caps are similar to COF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APH 42 1013347 0
TROW 34 337582 10
IDXX 40 417149 9
ALC 21 584000 -4
CSGP 50 2267394 10
MSCI 44 729558 15
MAR 48 2159338 1
Average 39.9 1072624 5.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $1073 million. That figure was $1908 million in COF’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Capital One Financial Corp. (NYSE:COF) is more popular among hedge funds. Our overall hedge fund sentiment score for COF is 90. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately COF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COF were disappointed as the stock returned 7.8% 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.

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