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Were Hedge Funds Right About Green Dot Corporation (GDOT)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Is Green Dot Corporation (NYSE:GDOT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in Green Dot Corporation (NYSE:GDOT) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Encore Wire Corporation (NASDAQ:WIRE), Matthews International Corp (NASDAQ:MATW), and Talend S.A. (NASDAQ:TLND) to gather more data points. Our calculations also showed that GDOT 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).

John Petry Sessa Capital

John Petry of Sessa Capital

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. With all of this in mind we’re going to view the latest hedge fund action surrounding Green Dot Corporation (NYSE:GDOT).

Hedge fund activity in Green Dot Corporation (NYSE:GDOT)

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in GDOT 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 Green Dot Corporation (NYSE:GDOT) was held by Citadel Investment Group, which reported holding $37.2 million worth of stock at the end of September. It was followed by D E Shaw with a $32.9 million position. Other investors bullish on the company included Two Sigma Advisors, Point72 Asset Management, and Sessa Capital. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to Green Dot Corporation (NYSE:GDOT), around 30.46% of its 13F portfolio. Parian Global Management is also relatively very bullish on the stock, setting aside 2.77 percent of its 13F equity portfolio to GDOT.

Because Green Dot Corporation (NYSE:GDOT) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers who were dropping their full holdings last quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $15.4 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $2.7 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 check out hedge fund activity in other stocks – not necessarily in the same industry as Green Dot Corporation (NYSE:GDOT) but similarly valued. These stocks are Encore Wire Corporation (NASDAQ:WIRE), Matthews International Corp (NASDAQ:MATW), Talend S.A. (NASDAQ:TLND), and H&E Equipment Services, Inc. (NASDAQ:HEES). This group of stocks’ market valuations are similar to GDOT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WIRE 13 48294 -4
MATW 9 43937 -1
TLND 24 438381 -5
HEES 15 44253 1
Average 15.25 143716 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $173 million in GDOT’s case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand Matthews International Corp (NASDAQ:MATW) is the least popular one with only 9 bullish hedge fund positions. Green Dot Corporation (NYSE:GDOT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on GDOT as the stock returned 23% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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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