We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Floor & Decor Holdings, Inc. (NYSE:FND) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Floor & Decor Holdings, Inc. (NYSE:FND) the right pick for your portfolio? Hedge funds are getting more optimistic. The number of long hedge fund positions advanced by 3 recently. Our calculations also showed that FND isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). FND was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with FND positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the fresh hedge fund action encompassing Floor & Decor Holdings, Inc. (NYSE:FND).
How have hedgies been trading Floor & Decor Holdings, Inc. (NYSE:FND)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in FND over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Joho Capital held the most valuable stake in Floor & Decor Holdings, Inc. (NYSE:FND), which was worth $167.9 million at the end of the third quarter. On the second spot was Two Creeks Capital Management which amassed $144.1 million worth of shares. Marshall Wace LLP, Arrowstreet Capital, and Balyasny Asset 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 Joho Capital allocated the biggest weight to Floor & Decor Holdings, Inc. (NYSE:FND), around 25.03% of its 13F portfolio. Two Creeks Capital Management is also relatively very bullish on the stock, earmarking 9.31 percent of its 13F equity portfolio to FND.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the biggest position in Floor & Decor Holdings, Inc. (NYSE:FND). Balyasny Asset Management had $20.8 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $20.6 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, Joseph Samuels’s Islet Management, and Robert Pitts’s Steadfast Capital Management.
Let’s go over hedge fund activity in other stocks similar to Floor & Decor Holdings, Inc. (NYSE:FND). These stocks are Cloudflare, Inc. (NYSE:NET), Essent Group Ltd (NYSE:ESNT), Hawaiian Electric Industries, Inc. (NYSE:HE), and DCP Midstream LP (NYSE:DCP). This group of stocks’ market caps are closest to FND’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NET | 22 | 205121 | -11 |
| ESNT | 36 | 327183 | 12 |
| HE | 17 | 175734 | 3 |
| DCP | 6 | 18020 | 2 |
| Average | 20.25 | 181515 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $548 million in FND’s case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 6 bullish hedge fund positions. Floor & Decor Holdings, Inc. (NYSE:FND) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FND wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FND were disappointed as the stock returned -33.9% during the same time period 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.
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.
