Hedge Funds Aren’t Crazy About Ferro Corporation (FOE) Anymore
Nina Todic
Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Ferro Corporation (NYSE:FOE) has seen a decrease in support from the world's most elite money managers recently. FOE was in 14 hedge funds' portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with FOE holdings at the end of the previous quarter. Our calculations also showed that FOE isn't among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
GAMCO Investors, Mario Gabelli
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the new hedge fund action regarding Ferro Corporation (NYSE:FOE).
What have hedge funds been doing with Ferro Corporation (NYSE:FOE)?
At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in FOE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
No of Hedge Funds with FOE Positions
Of the funds tracked by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the most valuable position in Ferro Corporation (NYSE:FOE). GAMCO Investors has a $66.1 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Luminus Management, led by Jonathan Barrett and Paul Segal, holding a $54 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining peers that hold long positions comprise Don Morgan's Brigade Capital, Chuck Royce's Royce & Associates and Ken Griffin's Citadel Investment Group.
Due to the fact that Ferro Corporation (NYSE:FOE) has witnessed bearish sentiment from the smart money, we can see that there was a specific group of hedgies who were dropping their full holdings in the second quarter. Interestingly, Alexander Mitchell's Scopus Asset Management sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $13.3 million in stock, and Ira Unschuld's Brant Point Investment Management was right behind this move, as the fund said goodbye to about $2.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Ferro Corporation (NYSE:FOE). These stocks are SM Energy Company (NYSE:SM), Helix Energy Solutions Group Inc. (NYSE:HLX), Saul Centers Inc (NYSE:BFS), and Herc Holdings Inc. (NYSE:HRI). This group of stocks' market valuations resemble FOE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SM,18,205491,-3 HLX,11,97055,-5 BFS,9,41006,-1 HRI,22,550489,-6 Average,15,223510,-3.75 [/table]
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $156 million in FOE's case. Herc Holdings Inc. (NYSE:HRI) is the most popular stock in this table. On the other hand Saul Centers Inc (NYSE:BFS) is the least popular one with only 9 bullish hedge fund positions. Ferro Corporation (NYSE:FOE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FOE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FOE investors were disappointed as the stock returned -24.9% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
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