Do Hedge Funds Love Falcon Minerals Corporation (FLMN)?

Is Falcon Minerals Corporation (NASDAQ:FLMN) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Falcon Minerals Corporation (NASDAQ:FLMN) was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. FLMN shareholders have witnessed a decrease in hedge fund interest recently. There were 22 hedge funds in our database with FLMN holdings at the end of the previous quarter. Our calculations also showed that FLMN 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Leon Cooperman of Omega Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Falcon Minerals Corporation (NASDAQ:FLMN).

How are hedge funds trading Falcon Minerals Corporation (NASDAQ:FLMN)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in FLMN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Samlyn Capital held the most valuable stake in Falcon Minerals Corporation (NASDAQ:FLMN), which was worth $24.4 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $11.6 million worth of shares. MSDC Management, Angelo Gordon & Co, and Soros Fund Management 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 MSDC Management allocated the biggest weight to Falcon Minerals Corporation (NASDAQ:FLMN), around 1.54% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, dishing out 1.03 percent of its 13F equity portfolio to FLMN.

Seeing as Falcon Minerals Corporation (NASDAQ:FLMN) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few money managers who sold off their positions entirely last quarter. At the top of the heap, John M. Angelo and Michael L. Gordon’s Angelo Gordon & Co sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $4.2 million in stock, and Barry Rosenstein’s JANA Partners was right behind this move, as the fund sold off about $3.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Falcon Minerals Corporation (NASDAQ:FLMN). We will take a look at Azure Power Global Limited (NYSE:AZRE), Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT), Old Line Bancshares, Inc. (NASDAQ:OLBK), and Amyris Inc (NASDAQ:AMRS). All of these stocks’ market caps resemble FLMN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $73 million in FLMN’s case. Old Line Bancshares, Inc.  (NASDAQ:OLBK) is the most popular stock in this table. On the other hand Azure Power Global Limited (NYSE:AZRE) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Falcon Minerals Corporation (NASDAQ:FLMN) is more popular among hedge funds. 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. Hedge funds were also right about betting on FLMN as the stock returned 14.6% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.