Hedge Funds Aren’t Crazy About Green Dot Corporation (GDOT) Anymore

·6 min read

Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 Green Dot Corporation (NYSE:GDOT).

Is Green Dot Corporation (NYSE:GDOT) the right investment to pursue these days? Money managers were getting less optimistic. The number of bullish hedge fund positions were cut by 4 lately. Green Dot Corporation (NYSE:GDOT) was in 22 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that GDOT isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

Jeff Smith
Jeff Smith

Jeffrey Smith of Starboard Value LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to analyze the key hedge fund action encompassing Green Dot Corporation (NYSE:GDOT).

Do Hedge Funds Think GDOT Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GDOT over the last 24 quarters. 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 Starboard Value LP, which reported holding $248 million worth of stock at the end of June. It was followed by Brahman Capital with a $69.4 million position. Other investors bullish on the company included No Street Capital, Greenhouse Funds, and PAR Capital Management. In terms of the portfolio weights assigned to each position No Street Capital allocated the biggest weight to Green Dot Corporation (NYSE:GDOT), around 7.51% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, setting aside 5.13 percent of its 13F equity portfolio to GDOT.

Because Green Dot Corporation (NYSE:GDOT) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their full holdings last quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest position of all the hedgies monitored by Insider Monkey, totaling close to $3.8 million in stock, and Jinghua Yan's TwinBeech Capital was right behind this move, as the fund sold off about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Green Dot Corporation (NYSE:GDOT). These stocks are Cedar Fair, L.P. (NYSE:FUN), Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB), Live Oak Bancshares Inc (NASDAQ:LOB), Proto Labs Inc (NYSE:PRLB), Tri Pointe Homes, Inc. (NYSE:TPH), Sanmina Corporation (NASDAQ:SANM), and Arbor Realty Trust, Inc. (NYSE:ABR). This group of stocks' market caps are similar to GDOT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FUN,13,99875,-1 OMAB,4,19340,0 LOB,11,98231,1 PRLB,19,361092,1 TPH,24,153445,-2 SANM,21,128951,5 ABR,18,109314,-3 Average,15.7,138607,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $539 million in GDOT's case. Tri Pointe Homes, Inc. (NYSE:TPH) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) is the least popular one with only 4 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 overall hedge fund sentiment score for GDOT is 66.6. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately GDOT wasn't nearly as popular as these 5 stocks and hedge funds that were betting on GDOT were disappointed as the stock returned -5.4% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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