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Hedge Funds Are Dumping Fastenal Company (FAST)

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Fastenal Company (NASDAQ:FAST).

Is Fastenal Company (NASDAQ:FAST) undervalued? The smart money was cutting their exposure. The number of long hedge fund positions dropped by 6 lately. Fastenal Company (NASDAQ:FAST) was in 24 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that FAST isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 30 hedge funds in our database with FAST positions at the end of the fourth quarter.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds' moves today.

William Von Mueffling - Cantillon Capital Management
William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. 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. With all of this in mind we're going to take a look at the recent hedge fund action surrounding Fastenal Company (NASDAQ:FAST).

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

At first quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2020. On the other hand, there were a total of 34 hedge funds with a bullish position in FAST a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, William von Mueffling's Cantillon Capital Management has the most valuable position in Fastenal Company (NASDAQ:FAST), worth close to $297.3 million, accounting for 2.2% of its total 13F portfolio. Coming in second is Robert Joseph Caruso of Select Equity Group, with a $143.8 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Cliff Asness's AQR Capital Management, Bryan Hinmon's Motley Fool Asset Management and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 4.38% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, designating 2.16 percent of its 13F equity portfolio to FAST.

Since Fastenal Company (NASDAQ:FAST) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their entire stakes last quarter. Interestingly, Israel Englander's Millennium Management said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, valued at about $39.8 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $20.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Fastenal Company (NASDAQ:FAST) but similarly valued. These stocks are The Williams Companies, Inc. (NYSE:WMB), Verisk Analytics, Inc. (NASDAQ:VRSK), Best Buy Co., Inc. (NYSE:BBY), Waste Connections, Inc. (NYSE:WCN), ResMed Inc. (NYSE:RMD), KKR & Co Inc. (NYSE:KKR), and Old Dominion Freight Line, Inc. (NASDAQ:ODFL). All of these stocks' market caps match FAST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMB,34,475466,-4 VRSK,34,1584703,2 BBY,33,957600,-5 WCN,31,822237,-4 RMD,25,313736,-2 KKR,56,4542794,2 ODFL,40,865894,-10 Average,36.1,1366061,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $576 million in FAST's case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Fastenal Company (NASDAQ:FAST) is even less popular than RMD. Our overall hedge fund sentiment score for FAST is 17.9. 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. Hedge funds dodged a bullet by taking a bearish stance towards FAST. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th but managed to beat the market again by 7.7 percentage points. Unfortunately FAST wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); FAST investors were disappointed as the stock returned 7.2% since the end of the first quarter (through 7/16) 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 since 2019.

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