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Is FutureFuel Corp. (NYSE:FF) 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 FF a good stock to buy now? FutureFuel Corp. (NYSE:FF) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of September. Our calculations also showed that FF 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). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Varex Imaging Corporation (NASDAQ:VREX), Northern Dynasty Minerals Ltd. (NYSE:NAK), and NOW Inc (NYSE:DNOW) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
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. Now we're going to go over the recent hedge fund action encompassing FutureFuel Corp. (NYSE:FF).
Do Hedge Funds Think FF Is A Good Stock To Buy Now?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FF over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in FutureFuel Corp. (NYSE:FF), which was worth $26.9 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $8.1 million worth of shares. Arrowstreet Capital, Millennium Management, and Arosa Capital Management 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 Arosa Capital Management allocated the biggest weight to FutureFuel Corp. (NYSE:FF), around 0.44% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to FF.
Seeing as FutureFuel Corp. (NYSE:FF) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few funds who were dropping their positions entirely heading into Q4. At the top of the heap, Noam Gottesman's GLG Partners cut the largest stake of all the hedgies tracked by Insider Monkey, totaling about $0.6 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dropped its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as FutureFuel Corp. (NYSE:FF) but similarly valued. These stocks are Varex Imaging Corporation (NASDAQ:VREX), Northern Dynasty Minerals Ltd. (NYSE:NAK), NOW Inc (NYSE:DNOW), A10 Networks Inc (NYSE:ATEN), Stoneridge, Inc. (NYSE:SRI), Transocean Ltd (NYSE:RIG), and Bryn Mawr Bank Corp. (NASDAQ:BMTC). All of these stocks' market caps are similar to FF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VREX,19,50693,-3 NAK,7,22223,-3 DNOW,22,74626,10 ATEN,26,109582,4 SRI,10,43915,1 RIG,17,24838,-4 BMTC,13,31872,1 Average,16.3,51107,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $49 million in FF's case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand Northern Dynasty Minerals Ltd. (NYSE:NAK) is the least popular one with only 7 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. Our overall hedge fund sentiment score for FF is 42.2. 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 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 gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately FF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FF investors were disappointed as the stock returned 8.2% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.