We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Geo Group, Inc. (NYSE:GEO).
The Geo Group, Inc. (NYSE:GEO) was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2019. GEO investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 23 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the recent hedge fund action regarding The Geo Group, Inc. (NYSE:GEO).
How have hedgies been trading The Geo Group, Inc. (NYSE:GEO)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GEO over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ken Heebner’s Capital Growth Management has the biggest position in The Geo Group, Inc. (NYSE:GEO), worth close to $35.8 million, comprising 2.9% of its total 13F portfolio. On Capital Growth Management’s heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $33.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish encompass John Overdeck and David Siegel’s Two Sigma Advisors, Ken Griffin’s Citadel Investment Group and Mark Coe’s Intrinsic Edge Capital. 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 2.9% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 0.73 percent of its 13F equity portfolio to GEO.
Since The Geo Group, Inc. (NYSE:GEO) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, David Costen Haley’s HBK Investments dumped the largest stake of all the hedgies watched by Insider Monkey, totaling about $2.6 million in stock, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors was right behind this move, as the fund said goodbye to about $1.8 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Geo Group, Inc. (NYSE:GEO) but similarly valued. These stocks are Essential Properties Realty Trust, Inc. (NYSE:EPRT), Minerals Technologies Inc (NYSE:MTX), TransAlta Corporation (NYSE:TAC), and National Storage Affiliates Trust (NYSE:NSA). 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $104 million in GEO’s case. Minerals Technologies Inc (NYSE:MTX) is the most popular stock in this table. On the other hand Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks The Geo Group, Inc. (NYSE:GEO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately GEO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GEO were disappointed as the stock returned -26.2% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.