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Is Falcon Minerals Corporation (NASDAQ:FLMN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is FLMN a good stock to buy now? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets went down by 1 recently. Falcon Minerals Corporation (NASDAQ:FLMN) was in 20 hedge funds' portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that FLMN 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). There were 21 hedge funds in our database with FLMN positions at the end of the second quarter.
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.
Robert Pohly of Samlyn Capital
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. Keeping this in mind let's take a look at the latest hedge fund action encompassing Falcon Minerals Corporation (NASDAQ:FLMN).
Do Hedge Funds Think FLMN Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FLMN over the last 21 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Falcon Minerals Corporation (NASDAQ:FLMN) was held by Nantahala Capital Management, which reported holding $8.1 million worth of stock at the end of September. It was followed by Samlyn Capital with a $5.6 million position. Other investors bullish on the company included Omega Advisors, MSDC Management, and Angelo Gordon & Co. In terms of the portfolio weights assigned to each position Nantahala Capital Management allocated the biggest weight to Falcon Minerals Corporation (NASDAQ:FLMN), around 0.25% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to FLMN.
Seeing as Falcon Minerals Corporation (NASDAQ:FLMN) has witnessed bearish sentiment from the smart money, it's easy to see that there exists a select few hedgies that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Keith Meister's Corvex Capital cut the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $6 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Falcon Minerals Corporation (NASDAQ:FLMN) but similarly valued. These stocks are Oasis Midstream Partners LP (NASDAQ:OMP), Maui Land & Pineapple Company, Inc. (NYSE:MLP), Alpine Immune Sciences, Inc. (NASDAQ:ALPN), YRC Worldwide, Inc. (NASDAQ:YRCW), Genie Energy Ltd (NYSE:GNE), Dyadic International, Inc. (NASDAQ:DYAI), and CTO Realty Growth Inc (NYSE:CTO). This group of stocks' market caps are similar to FLMN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMP,3,1741,0 MLP,4,8841,1 ALPN,12,81013,7 YRCW,9,8497,-1 GNE,8,11912,-2 DYAI,4,5392,1 CTO,8,17012,-4 Average,6.9,19201,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $20 million in FLMN's case. Alpine Immune Sciences, Inc. (NASDAQ:ALPN) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NASDAQ:OMP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Falcon Minerals Corporation (NASDAQ:FLMN) is more popular among hedge funds. Our overall hedge fund sentiment score for FLMN is 81.3. 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on FLMN as the stock returned 19.7% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.