Is Essent Group Ltd (ESNT) A Good Stock To Buy?

Is Essent Group Ltd (NYSE:ESNT) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have 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.

Is Essent Group Ltd (NYSE:ESNT) undervalued? Money managers are becoming more confident. The number of bullish hedge fund bets advanced by 2 lately. Our calculations also showed that esnt isn’t among the 30 most popular stocks among hedge funds. ESNT was in 30 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with ESNT positions at the end of the previous quarter.

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 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Dmitry Balyasny

Let’s take a gander at the new hedge fund action encompassing Essent Group Ltd (NYSE:ESNT).

What does the smart money think about Essent Group Ltd (NYSE:ESNT)?

Heading into the fourth quarter of 2018, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in ESNT at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ESNT Positions

More specifically, Polar Capital was the largest shareholder of Essent Group Ltd (NYSE:ESNT), with a stake worth $78.5 million reported as of the end of September. Trailing Polar Capital was Citadel Investment Group, which amassed a stake valued at $68.6 million. GLG Partners, Balyasny Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, specific money managers were breaking ground themselves. Gillson Capital, managed by Daniel Johnson, assembled the most valuable position in Essent Group Ltd (NYSE:ESNT). Gillson Capital had $12.2 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $6.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is George Zweig, Shane Haas and Ravi Chander’s Signition LP.

Let’s check out hedge fund activity in other stocks similar to Essent Group Ltd (NYSE:ESNT). These stocks are Peabody Energy Corporation (NYSE:BTU), Seaboard Corporation (NYSEAMEX:SEB), Univar Inc (NYSE:UNVR), and 2U Inc (NASDAQ:TWOU). This group of stocks’ market caps are similar to ESNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTU 34 2098132 10
SEB 9 68012 -1
UNVR 33 854211 0
TWOU 14 119179 -5
Average 22.5 784884 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $463 million in ESNT’s case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSEAMEX:SEB) is the least popular one with only 9 bullish hedge fund positions. Essent Group Ltd (NYSE:ESNT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BTU might be a better candidate to consider a long position.

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