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Do Hedge Funds Love Federal Signal Corporation (FSS)?

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Federal Signal Corporation (NYSE:FSS) based on that data.

Federal Signal Corporation (NYSE:FSS) was in 15 hedge funds' portfolios at the end of March. FSS has seen a decrease in activity from the world's largest hedge funds in recent months. There were 18 hedge funds in our database with FSS holdings at the end of the previous quarter. Our calculations also showed that FSS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are assumed to be slow, outdated financial tools of the past. While there are over 8000 funds in operation at the moment, Our researchers hone in on the bigwigs of this group, about 850 funds. These investment experts have their hands on the majority of the hedge fund industry's total capital, and by monitoring their matchless stock picks, Insider Monkey has identified several investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_221556" align="aligncenter" width="400"] Richard Driehaus of Driehaus Capital[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's view the recent hedge fund action encompassing Federal Signal Corporation (NYSE:FSS).

How are hedge funds trading Federal Signal Corporation (NYSE:FSS)?

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in FSS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FSS A Good Stock To Buy?

The largest stake in Federal Signal Corporation (NYSE:FSS) was held by GAMCO Investors, which reported holding $20.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $10 million position. Other investors bullish on the company included Renaissance Technologies, Driehaus Capital, and Navellier & Associates. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Federal Signal Corporation (NYSE:FSS), around 1.03% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, earmarking 0.74 percent of its 13F equity portfolio to FSS.

Due to the fact that Federal Signal Corporation (NYSE:FSS) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few funds who sold off their positions entirely last quarter. Interestingly, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors sold off the biggest position of the "upper crust" of funds monitored by Insider Monkey, worth close to $13.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dumped its stock, about $2.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Federal Signal Corporation (NYSE:FSS) but similarly valued. We will take a look at Ameris Bancorp (NASDAQ:ABCB), World Fuel Services Corporation (NYSE:INT), New Fortress Energy LLC (NASDAQ:NFE), and SJW Corp. (NYSE:SJW). This group of stocks' market valuations are closest to FSS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABCB,13,78011,-3 INT,13,98040,-9 NFE,2,19235,1 SJW,10,98677,-1 Average,9.5,73491,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $54 million in FSS's case. Ameris Bancorp (NASDAQ:ABCB) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Federal Signal Corporation (NYSE:FSS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately FSS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FSS were disappointed as the stock returned 7% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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