FutureFuel Corp. (FF): Are Hedge Funds Right About This Stock?

Reymerlyn Martin

Updated Sat, Dec 22, 2018, 9:45 PM

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is FutureFuel Corp. (NYSE:FF) the right investment to pursue these days? Prominent investors are getting more optimistic. The number of long hedge fund bets improved by 1 lately. Our calculations also showed that FF isn't among the 30 most popular stocks among hedge funds. FF was in 11 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with FF holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

We're going to take a glance at the new hedge fund action regarding FutureFuel Corp. (NYSE:FF).

What have hedge funds been doing with FutureFuel Corp. (NYSE:FF)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2018. On the other hand, there were a total of 12 hedge funds with a bullish position in FF at the beginning of this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in FutureFuel Corp. (NYSE:FF) was held by Renaissance Technologies, which reported holding $36.2 million worth of stock at the end of September. It was followed by Royce & Associates with a $17.1 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Two Sigma Advisors.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the most valuable call position in FutureFuel Corp. (NYSE:FF). PEAK6 Capital Management had $0.7 million invested in the company at the end of the quarter. Mike Vranos's Ellington also made a $0.3 million investment in the stock during the quarter.

Let's go over hedge fund activity in other stocks similar to FutureFuel Corp. (NYSE:FF). We will take a look at German American Bancorp., Inc. (NASDAQ:GABC), Hanmi Financial Corp (NASDAQ:HAFC), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), and Radius Health Inc (NASDAQ:RDUS). This group of stocks' market values are similar to FF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GABC,5,9561,0 HAFC,12,54930,-1 JBSS,8,103785,-4 RDUS,24,291607,9 Average,12.25,114971,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $72 million in FF's case. Radius Health Inc (NASDAQ:RDUS) is the most popular stock in this table. On the other hand German American Bancorp., Inc. (NASDAQ:GABC) is the least popular one with only 5 bullish hedge fund positions. FutureFuel Corp. (NYSE:FF) 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. In this regard RDUS might be a better candidate to consider a long position.

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

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