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Credit Crunch? Top 7 Credit Service Stocks With Hedge Fund Buying

9/27/2011 2:34:00 PM
By: Kapitall

(Written by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Data sourced from Fidelity.)

"Americans added $18 billion to their [credit card] debt load in the second quarter, a 66% increase from the debt they accumulated in the same quarter last year and 368% more than they tacked on in 2009, according to credit card research firm," reports CNNMoney.

The last time credit debt increased by similar levels was in the months following the 2008 recession. But according to the Federal Reserve's most recent data, this July's debt of $792 billion pales in comparison to September 2008's $972 billion. And it represents a slight improvement to June's $796 billion debt.

Still, the overall trend in credit card debt accumulation shows consumers "could find themselves even deeper in the hole," writes CNNMoney. "CardHub, which analyzed the consumer debt data from the Federal Reserve, estimates that consumers will run up about $54 billion more in credit card debt by the end of 2011 than they did in 2010."

Credit card companies may be partially to blame. For one thing, credit cards pose more debt risks than debit cards. And as the economy starts to pull itself out of the recession credit companies have made it easier to extend credit, even to those who ought not to be applicable. They have also been making a point to entice consumers away from debit by highlighting fee reductions and increasing incentives.

In general, credit companies have been reporting better behavior from their customers: "Late payments and defaults dropped significantly among major credit card issuers, according to August regulatory filings of major credit card issuers… compiled by credit card comparison website"

But CNN Money says not everyone has learned his or her lesson. While some consumers are using the new lenience responsibly, there will always be people who will use it only to find themselves further into debt at the expense of credit companies and the country's overall finances.

So, what do big money managers think of these trends? For ideas, we collected data on institutional flows, and identified the credit service stocks that have seen the biggest increases in institutional ownership over the last quarter.

Big money managers seem to be excited by the prospects of these firms--do you agree?

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List sorted by market cap.

1. Cash America International, Inc. (CSH): Provides specialty financial services to individuals primarily in the United States and Mexico. Net institutional purchases in the current quarter at 1.5M shares, which represents about 5.16% of the company's float of 29.08M shares.

2. Dollar Financial Corp. (DLLR): Provides retail financial services to unbanked and under-banked consumers, and small businesses. Net institutional purchases in the current quarter at 6.4M shares, which represents about 16.82% of the company's float of 38.04M shares.

3. Encore Capital Group, Inc. (ECPG): Engages in consumer debt buying and recovery business. Net institutional purchases in the current quarter at 1.4M shares, which represents about 15.89% of the company's float of 8.81M shares.

4. Primus Guaranty, Ltd. (PRS): Operates as a credit derivative product company. Net institutional purchases in the current quarter at 942.3K shares, which represents about 5.83% of the company's float of 16.17M shares.

5. Nicholas Financial Inc. (NICK): Operates as a specialized consumer finance company. Net institutional purchases in the current quarter at 822.0K shares, which represents about 13.15% of the company's float of 6.25M shares.

6. MicroFinancial Inc. (MFI): Operates as a specialized commercial finance company that provides microticket equipment leasing and rental, and other financing services in the United States. Net institutional purchases in the current quarter at 239.5K shares, which represents about 3.7% of the company's float of 6.48M shares.

7. Intervest Bancshares Corp. (IBCA): Operates as the holding company for Intervest National Bank and Intervest Mortgage Corporation, which engage in banking and real estate lending businesses. Net institutional purchases in the current quarter at 596.7K shares, which represents about 3.68% of the company's float of 16.23M shares.