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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Home Bancshares Inc (NASDAQ:HOMB).
Is HOMB a good stock to buy now? Home Bancshares Inc (NASDAQ:HOMB) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that HOMB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Brighthouse Financial, Inc. (NASDAQ:BHF), Acushnet Holdings Corp. (NYSE:GOLF), and Option Care Health, Inc. (NASDAQ:OPCH) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a look at the new hedge fund action encompassing Home Bancshares Inc (NASDAQ:HOMB).
Do Hedge Funds Think HOMB Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in HOMB a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Home Bancshares Inc (NASDAQ:HOMB) was held by Royce & Associates, which reported holding $21.2 million worth of stock at the end of September. It was followed by Elizabeth Park Capital Management with a $5.4 million position. Other investors bullish on the company included Basswood Capital, Millennium Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Home Bancshares Inc (NASDAQ:HOMB), around 3.5% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to HOMB.
Because Home Bancshares Inc (NASDAQ:HOMB) has experienced declining sentiment from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that David Andre and Astro Teller’s Cerebellum Capital dropped the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $3.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Home Bancshares Inc (NASDAQ:HOMB) but similarly valued. These stocks are Brighthouse Financial, Inc. (NASDAQ:BHF), Acushnet Holdings Corp. (NYSE:GOLF), Option Care Health, Inc. (NASDAQ:OPCH), Evertec Inc (NYSE:EVTC), NuVasive, Inc. (NASDAQ:NUVA), Evoqua Water Technologies Corp. (NYSE:AQUA), and Cimarex Energy Co (NYSE:XEC). This group of stocks’ market valuations are closest to HOMB’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 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $33 million in HOMB’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 12 bullish hedge fund positions. Home Bancshares Inc (NASDAQ:HOMB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HOMB is 29.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on HOMB as the stock returned 29.6% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.