World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
L.B. Foster Company (NASDAQ:FSTR) was in 15 hedge funds' portfolios at the end of the second quarter of 2019. FSTR shareholders have witnessed an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with FSTR holdings at the end of the previous quarter. Our calculations also showed that FSTR isn't among the 30 most popular stocks among hedge funds (see the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's take a look at the new hedge fund action surrounding L.B. Foster Company (NASDAQ:FSTR).
What does smart money think about L.B. Foster Company (NASDAQ:FSTR)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in FSTR over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in L.B. Foster Company (NASDAQ:FSTR) was held by Legion Partners Asset Management, which reported holding $28.8 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $19.5 million position. Other investors bullish on the company included Rutabaga Capital Management, D E Shaw, and Minerva Advisors.
Now, key money managers were leading the bulls' herd. Millennium Management, managed by Israel Englander, created the largest position in L.B. Foster Company (NASDAQ:FSTR). Millennium Management had $0.6 million invested in the company at the end of the quarter. Thomas Bailard's Bailard Inc also made a $0.2 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as L.B. Foster Company (NASDAQ:FSTR) but similarly valued. We will take a look at Ardmore Shipping Corp (NYSE:ASC), DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), Gladstone Capital Corporation (NASDAQ:GLAD), and CEL-SCI Corporation (NYSEAMEX:CVM). This group of stocks' market valuations resemble FSTR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASC,10,27291,1 DZSI,6,7836,4 GLAD,5,5438,0 CVM,2,736,-1 Average,5.75,10325,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $69 million in FSTR's case. Ardmore Shipping Corp (NYSE:ASC) is the most popular stock in this table. On the other hand CEL-SCI Corporation (NYSEAMEX:CVM) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks L.B. Foster Company (NASDAQ:FSTR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FSTR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FSTR were disappointed as the stock returned -20.7% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.