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Is Fair Isaac Corporation (FICO) Going to Burn These Hedge Funds?

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In this article you are going to find out whether hedge funds think Fair Isaac Corporation (NYSE:FICO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Fair Isaac Corporation (NYSE:FICO) was in 27 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 45. FICO shareholders have witnessed a decrease in hedge fund interest recently. There were 38 hedge funds in our database with FICO holdings at the end of December. Our calculations also showed that FICO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery 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 check out the recent hedge fund action regarding Fair Isaac Corporation (NYSE:FICO).

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

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in FICO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is FICO A Good Stock To Buy?
Is FICO A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Melvin Capital Management, managed by Gabriel Plotkin, holds the number one position in Fair Isaac Corporation (NYSE:FICO). Melvin Capital Management has a $566.2 million position in the stock, comprising 3.2% of its 13F portfolio. On Melvin Capital Management's heels is Valley Forge Capital, led by Dev Kantesaria, holding a $323.7 million position; the fund has 15.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Gabriel Plotkin's Melvin Capital Management, Nicolai Tangen's Ako Capital and Joseph Samuels's Islet Management. In terms of the portfolio weights assigned to each position Valley Forge Capital allocated the biggest weight to Fair Isaac Corporation (NYSE:FICO), around 15.31% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, dishing out 8.84 percent of its 13F equity portfolio to FICO.

Since Fair Isaac Corporation (NYSE:FICO) has faced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of fund managers who sold off their entire stakes by the end of the first quarter. It's worth mentioning that Robert Boucai's Newbrook Capital Advisors sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising about $59.3 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $28 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 11 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Fair Isaac Corporation (NYSE:FICO) but similarly valued. We will take a look at Equitable Holdings, Inc. (NYSE:EQH), argenx SE (NASDAQ:ARGX), Agnico Eagle Mines Limited (NYSE:AEM), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Sociedad Quimica y Minera (NYSE:SQM), Howmet Aerospace Inc. (NYSE:HWM), and Elanco Animal Health Incorporated (NYSE:ELAN). All of these stocks' market caps are similar to FICO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQH,44,1699164,-2 ARGX,27,1375874,5 AEM,28,247180,-8 XRAY,26,1218918,-2 SQM,16,142465,2 HWM,51,3959776,2 ELAN,42,1710158,-1 Average,33.4,1479076,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1479 million. That figure was $1355 million in FICO's case. Howmet Aerospace Inc. (NYSE:HWM) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera (NYSE:SQM) is the least popular one with only 16 bullish hedge fund positions. Fair Isaac Corporation (NYSE:FICO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FICO is 27.7. 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 negative signal and 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 July 9th and surpassed the market again by 6.7 percentage points. Unfortunately FICO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FICO investors were disappointed as the stock returned 7.8% since the end of March (through 7/9) 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 most of these stocks already outperformed the market in 2021.

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