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Resolute Forest Products Inc (RFP): Are Hedge Funds Right About This Stock?

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Debasis Saha
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Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Resolute Forest Products Inc (NYSE:RFP) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that RFP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are tons of formulas investors can use to size up publicly traded companies. A couple of the most useful formulas are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outpace the market by a healthy margin (see the details here).

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. We're going to take a look at the latest hedge fund action encompassing Resolute Forest Products Inc (NYSE:RFP).

What does smart money think about Resolute Forest Products Inc (NYSE:RFP)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in RFP a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is RFP A Good Stock To Buy?
Is RFP A Good Stock To Buy?

The largest stake in Resolute Forest Products Inc (NYSE:RFP) was held by Fairfax Financial Holdings, which reported holding $143.6 million worth of stock at the end of September. It was followed by Chou Associates Management with a $21.5 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Marshall Wace. In terms of the portfolio weights assigned to each position Chou Associates Management allocated the biggest weight to Resolute Forest Products Inc (NYSE:RFP), around 13.11% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, designating 6.63 percent of its 13F equity portfolio to RFP.

Judging by the fact that Resolute Forest Products Inc (NYSE:RFP) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there were a few money managers who were dropping their full holdings last quarter. It's worth mentioning that Mike Vranos's Ellington dumped the largest investment of the 750 funds monitored by Insider Monkey, worth about $0.1 million in call options. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its call options, about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Resolute Forest Products Inc (NYSE:RFP). We will take a look at Community Health Systems (NYSE:CYH), PDF Solutions, Inc. (NASDAQ:PDFS), Clean Energy Fuels Corp (NASDAQ:CLNE), and Donnelley Financial Solutions, Inc. (NYSE:DFIN). This group of stocks' market values resemble RFP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CYH,19,64369,6 PDFS,11,22936,3 CLNE,10,22186,2 DFIN,13,49425,1 Average,13.25,39729,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $187 million in RFP's case. Community Health Systems (NYSE:CYH) is the most popular stock in this table. On the other hand Clean Energy Fuels Corp (NASDAQ:CLNE) is the least popular one with only 10 bullish hedge fund positions. Resolute Forest Products Inc (NYSE:RFP) 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 RFP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RFP were disappointed as the stock returned -14.7% 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.

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