After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards L.B. Foster Company (NASDAQ:FSTR).
Is FSTR a good stock to buy now? Hedge fund interest in L.B. Foster Company (NASDAQ:FSTR) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that FSTR 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). At the end of this article we will also compare FSTR to other stocks including Inmune Bio Inc. (NASDAQ:INMB), Aytu BioScience, Inc. (NASDAQ:AYTU), and Orrstown Financial Services (NASDAQ:ORRF) to get a better sense of its popularity.
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 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 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 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.
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. With all of this in mind we're going to review the recent hedge fund action regarding L.B. Foster Company (NASDAQ:FSTR).
Do Hedge Funds Think FSTR Is A Good Stock To Buy Now?
At third quarter's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in FSTR a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Is FSTR A Good Stock To Buy?
The largest stake in L.B. Foster Company (NASDAQ:FSTR) was held by Legion Partners Asset Management, which reported holding $14 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $8.5 million position. Other investors bullish on the company included GAMCO Investors, Rutabaga Capital Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to L.B. Foster Company (NASDAQ:FSTR), around 3.36% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, designating 2.04 percent of its 13F equity portfolio to FSTR.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as L.B. Foster Company (NASDAQ:FSTR) but similarly valued. We will take a look at Inmune Bio Inc. (NASDAQ:INMB), Aytu BioScience, Inc. (NASDAQ:AYTU), Orrstown Financial Services (NASDAQ:ORRF), Harrow Health, Inc. (NASDAQ:HROW), Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI), Postal Realty Trust, Inc. (NYSE:PSTL), and GTY Technology Holdings, Inc. (NASDAQ:GTYH). All of these stocks' market caps are similar to FSTR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INMB,3,4021,3 AYTU,3,80,-1 ORRF,3,3712,-1 HROW,15,33472,5 RMBI,5,3727,0 PSTL,7,27122,1 GTYH,6,8929,2 Average,6,11580,1.3 [/table]
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $35 million in FSTR's case. Harrow Health, Inc. (NASDAQ:HROW) is the most popular stock in this table. On the other hand Inmune Bio Inc. (NASDAQ:INMB) is the least popular one with only 3 bullish hedge fund positions. L.B. Foster Company (NASDAQ:FSTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FSTR is 66.5. 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. Hedge funds were also right about betting on FSTR as the stock returned 11.8% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
