How H&R Block Inc. (HRB) Stacks Up Against Similarly Valued Stocks

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

H&R Block Inc. (NYSE:HRB) was in 13 hedge funds’ portfolios at the end of September. HRB has seen a decrease in hedge fund interest in recent months. There were 20 hedge funds in our database with HRB holdings at the end of the previous quarter. At the end of this article we will also compare HRB to other stocks including Nutanix Inc. (NASDAQ:NTNX), Israel Chemicals Ltd. (NYSE:ICL), and Carlyle Group LP (NASDAQ:CG) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

With all of this in mind, let’s take a look at the fresh action encompassing H&R Block Inc. (NYSE:HRB).

Hedge fund activity in H&R Block Inc. (NYSE:HRB)

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HRB over the last 5 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Cliff Asness’ AQR Capital Management has the number one position in H&R Block Inc. (NYSE:HRB), worth close to $49.4 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, which holds a $33.1 million position; 0.2% of its 13F portfolio is allocated to the stock. Other peers that are bullish encompass Jim Simons’ Renaissance Technologies, one of the largest hedge funds in the world, and Phill Gross and Robert Atchinson’s Adage Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since H&R Block, Inc. (NYSE:HRB) has sustained bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers who sold off their entire stakes heading into Q4. Intriguingly, Jean-Marie Eveillard’s First Eagle Investment Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising about $132.3 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also said goodbye to its stock, about $25.7 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as H&R Block, Inc. (NYSE:HRB) but similarly valued. These stocks are Nutanix Inc. (NASDAQ:NTNX), Israel Chemicals Ltd. (NYSE:ICL), Carlyle Group LP (NASDAQ:CG), and Royal Gold, Inc USA) (NASDAQ:RGLD). This group of stocks’ market caps resemble HRB’s market cap.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $154 million in HRB’s case. Nutanix Inc. (NASDAQ:NTNX) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 4 bullish hedge fund positions. H&R Block, Inc. (NYSE:HRB) 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. In this regard NTNX might be a better candidate to consider taking a long position in.