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Were Hedge Funds Right About Eagle Bancorp, Inc. (EGBN)?

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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Eagle Bancorp, Inc. (NASDAQ:EGBN).

Eagle Bancorp, Inc. (NASDAQ:EGBN) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that EGBN 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 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 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 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.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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 (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind let’s review the new hedge fund action surrounding Eagle Bancorp, Inc. (NASDAQ:EGBN).

What does smart money think about Eagle Bancorp, Inc. (NASDAQ:EGBN)?

Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EGBN over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Second Curve Capital was the largest shareholder of Eagle Bancorp, Inc. (NASDAQ:EGBN), with a stake worth $11.9 million reported as of the end of September. Trailing Second Curve Capital was GAMCO Investors, which amassed a stake valued at $5.2 million. Millennium Management, Renaissance Technologies, and Fisher Asset 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 Second Curve Capital allocated the biggest weight to Eagle Bancorp, Inc. (NASDAQ:EGBN), around 6.32% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to EGBN.

Now, key money managers have been driving this bullishness. Winton Capital Management, managed by David Harding, initiated the largest position in Eagle Bancorp, Inc. (NASDAQ:EGBN). Winton Capital Management had $0.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new EGBN investors: John Overdeck and David Siegel’s Two Sigma Advisors, Schonfeld Strategic Advisors, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Eagle Bancorp, Inc. (NASDAQ:EGBN) but similarly valued. These stocks are Gibraltar Industries Inc (NASDAQ:ROCK), Esperion Therapeutics (NASDAQ:ESPR), Provident Financial Services, Inc. (NYSE:PFS), and Zuora, Inc. (NYSE:ZUO). This group of stocks’ market values are similar to EGBN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROCK 23 147934 4
ESPR 15 210894 -1
PFS 16 60229 4
ZUO 26 160649 0
Average 20 144927 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $145 million. That figure was $37 million in EGBN’s case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand Esperion Therapeutics (NASDAQ:ESPR) is the least popular one with only 15 bullish hedge fund positions. Eagle Bancorp, Inc. (NASDAQ:EGBN) 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 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 but beat the market by 4.2 percentage points. Unfortunately EGBN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EGBN investors were disappointed as the stock returned -36.2% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
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.

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