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Is Fastenal Company (FAST) A Good Stock To Buy?

Abigail Fisher

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Fastenal Company (NASDAQ:FAST) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Fastenal Company (NASDAQ:FAST) was in 28 hedge funds' portfolios at the end of September. FAST shareholders have witnessed a decrease in support from the world's most elite money managers recently. There were 29 hedge funds in our database with FAST positions at the end of the previous quarter. Our calculations also showed that FAST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the eyes of most stock holders, hedge funds are perceived as unimportant, outdated investment tools of yesteryear. While there are greater than 8000 funds with their doors open today, Our researchers hone in on the crème de la crème of this club, approximately 750 funds. It is estimated that this group of investors shepherd most of all hedge funds' total asset base, and by observing their best stock picks, Insider Monkey has unearthed many investment strategies that have historically exceeded the market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_758454" align="aligncenter" width="450"] James Dondero of Highland Capital Management[/caption]

James Dondero Highland Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action regarding Fastenal Company (NASDAQ:FAST).

What does smart money think about Fastenal Company (NASDAQ:FAST)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in FAST over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

FAST_dec2019

Among these funds, Route One Investment Company held the most valuable stake in Fastenal Company (NASDAQ:FAST), which was worth $514.2 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $225.3 million worth of shares. Cantillon Capital Management, D E Shaw, and Park Presidio Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Route One Investment Company allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 15.5% of its portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 6.76 percent of its 13F equity portfolio to FAST.

Due to the fact that Fastenal Company (NASDAQ:FAST) has experienced bearish sentiment from the smart money, it's safe to say that there was a specific group of hedge funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Matthew Tewksbury's Stevens Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $14.9 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund dropped about $14.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Fastenal Company (NASDAQ:FAST). We will take a look at ANSYS, Inc. (NASDAQ:ANSS), Church & Dwight Co., Inc. (NYSE:CHD), Altice USA, Inc. (NYSE:ATUS), and Cadence Design Systems Inc (NASDAQ:CDNS). This group of stocks' market caps resemble FAST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANSS,28,882714,3 CHD,34,543789,4 ATUS,51,3138068,6 CDNS,33,1579724,5 Average,36.5,1536074,4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1536 million. That figure was $1046 million in FAST's case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand ANSYS, Inc. (NASDAQ:ANSS) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Fastenal Company (NASDAQ:FAST) is even less popular than ANSS. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FAST, though not to the same extent, as the stock returned 9.4% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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