Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Franklin Covey Co. (NYSE:FC).
Is Franklin Covey Co. (NYSE:FC) a bargain? Investors who are in the know are getting more optimistic. The number of long hedge fund positions increased by 3 lately. Our calculations also showed that FC 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the key hedge fund action encompassing Franklin Covey Co. (NYSE:FC).
Hedge fund activity in Franklin Covey Co. (NYSE:FC)
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in FC 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.
The largest stake in Franklin Covey Co. (NYSE:FC) was held by Osmium Partners, which reported holding $6.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4.2 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Franklin Covey Co. (NYSE:FC), around 8.54% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to FC.
As industrywide interest jumped, specific money managers have jumped into Franklin Covey Co. (NYSE:FC) headfirst. Millennium Management, managed by Israel Englander, established the largest position in Franklin Covey Co. (NYSE:FC). Millennium Management had $2.4 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $1.3 million position during the quarter. The only other fund with a new position in the stock is Michael Gelband's ExodusPoint Capital.
Let's now take a look at hedge fund activity in other stocks similar to Franklin Covey Co. (NYSE:FC). These stocks are Ducommun Incorporated (NYSE:DCO), Century Bancorp, Inc. (NASDAQ:CNBKA), Digimarc Corp (NASDAQ:DMRC), and Digimarc Corp (NASDAQ:DMRC). This group of stocks' market values are similar to FC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DCO,12,63714,1 CNBKA,5,17664,2 DMRC,6,38801,0 DMRC,6,38801,0 Average,7.25,39745,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $22 million in FC's case. Ducommun Incorporated (NYSE:DCO) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 5 bullish hedge fund positions. Franklin Covey Co. (NYSE:FC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FC were disappointed as the stock returned 5.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.