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 750 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) and compare its performance to hedge funds' consensus picks in 2019.
Is Fastenal Company (NASDAQ:FAST) worth your attention right now? The best stock pickers are selling. The number of bullish hedge fund bets were cut by 1 recently. Our calculations also showed that FAST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). FAST was in 28 hedge funds' portfolios at the end of the third quarter of 2019. There were 29 hedge funds in our database with FAST positions at the end of the previous 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. 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_364853" align="aligncenter" width="594"] William Von Mueffling of Cantillon Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to check out the latest hedge fund action regarding Fastenal Company (NASDAQ:FAST).
Hedge fund activity in Fastenal Company (NASDAQ:FAST)
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in FAST a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Route One Investment Company held the most valuable stake in Fastenal Company (NASDAQ:FAST), which was worth $514.2 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $225.3 million worth of shares. Cantillon Capital Management, D E Shaw, and Park Presidio Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Route One Investment Company allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 15.5% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, earmarking 6.76 percent of its 13F equity portfolio to FAST.
Due to the fact that Fastenal Company (NASDAQ:FAST) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of hedgies that elected to cut their entire stakes heading into Q4. At the top of the heap, Matthew Tewksbury's Stevens Capital Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at about $14.9 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also cut its stock, about $14.9 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Fastenal Company (NASDAQ:FAST) but similarly valued. These stocks are ANSYS, Inc. (NASDAQ:ANSS), Church & Dwight Co., Inc. (NYSE:CHD), Altice USA, Inc. (NYSE:ATUS), and Cadence Design Systems Inc (NASDAQ:CDNS). This group of stocks' market caps are similar to FAST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANSS,28,882714,3 CHD,34,543789,4 ATUS,51,3138068,6 CDNS,33,1579724,5 Average,36.5,1536074,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1536 million. That figure was $1046 million in FAST's case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand ANSYS, Inc. (NASDAQ:ANSS) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Fastenal Company (NASDAQ:FAST) is even less popular than ANSS. Hedge funds clearly dropped the ball on FAST as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on FAST as the stock returned 45.9% in 2019 (through December 23rd) and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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