Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Fair Isaac Corporation (NYSE:FICO)? The smart money sentiment can provide an answer to this question.
Fair Isaac Corporation (NYSE:FICO) investors should pay attention to an increase in enthusiasm from smart money recently. Fair Isaac Corporation (NYSE:FICO) was in 28 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. Our calculations also showed that FICO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s view the recent hedge fund action encompassing Fair Isaac Corporation (NYSE:FICO).
Do Hedge Funds Think FICO Is A Good Stock To Buy Now?
At Q2’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in FICO over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Melvin Capital Management, managed by Gabriel Plotkin, holds the biggest position in Fair Isaac Corporation (NYSE:FICO). Melvin Capital Management has a $495.1 million position in the stock, comprising 2.8% of its 13F portfolio. The second largest stake is held by Valley Forge Capital, led by Dev Kantesaria, holding a $337.6 million position; 13.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish comprise Gabriel Plotkin’s Melvin Capital Management, Nicolai Tangen’s Ako Capital and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Valley Forge Capital allocated the biggest weight to Fair Isaac Corporation (NYSE:FICO), around 13.11% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, designating 8.44 percent of its 13F equity portfolio to FICO.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in Fair Isaac Corporation (NYSE:FICO). Arrowstreet Capital had $11.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $9 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Walters II’s Stony Point Capital, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fair Isaac Corporation (NYSE:FICO) but similarly valued. These stocks are Apollo Global Management Inc (NYSE:APO), Shaw Communications Inc (NYSE:SJR), News Corp (NASDAQ:NWS), Loews Corporation (NYSE:L), Solaredge Technologies Inc (NASDAQ:SEDG), PulteGroup, Inc. (NYSE:PHM), and Telefonica Brasil SA (NYSE:VIV). This group of stocks’ market values resemble FICO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APO | 37 | 2617533 | -7 |
| SJR | 23 | 697694 | 2 |
| NWS | 19 | 178722 | -2 |
| L | 28 | 212289 | 7 |
| SEDG | 37 | 675586 | 5 |
| PHM | 34 | 948574 | -8 |
| VIV | 9 | 59331 | 0 |
| Average | 26.7 | 769961 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $770 million. That figure was $1225 million in FICO’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 9 bullish hedge fund positions. Fair Isaac Corporation (NYSE:FICO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FICO is 58.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately FICO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FICO were disappointed as the stock returned -18.5% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Fair Isaac Corp (NYSE:FICO)
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Disclosure: None. This article was originally published at Insider Monkey.
