In this article we will check out the progression of hedge fund sentiment towards The Brink’s Company (NYSE:BCO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in The Brink’s Company (NYSE:BCO) shares was flat at the end of last quarter. This is usually a negative indicator. 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action encompassing The Brink’s Company (NYSE:BCO).
How are hedge funds trading The Brink’s Company (NYSE:BCO)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in BCO a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, P2 Capital Partners held the most valuable stake in The Brink’s Company (NYSE:BCO), which was worth $117.2 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $66.4 million worth of shares. Ariel Investments, Balyasny Asset Management, and AQR Capital 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 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, designating 1.61 percent of its 13F equity portfolio to BCO.
Since The Brink’s Company (NYSE:BCO) has experienced a decline in interest from the smart money, we can see that there were a few funds who sold off their full holdings in the first quarter. At the top of the heap, Mitch Kuflik and Rob Sobel’s Brahman Capital said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $42.3 million in stock. Peter S. Park’s fund, Park West Asset Management, also dropped its stock, about $34.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine 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 match BCO’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 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 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 -3.9% 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.
Disclosure: None. This article was originally published at Insider Monkey.