Hedge Funds Are Betting On First American Financial Corp (FAF)

How do we determine whether First American Financial Corp (NYSE:FAF) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is First American Financial Corp (NYSE:FAF) a first-rate investment right now? The best stock pickers are in an optimistic mood. The number of bullish hedge fund bets moved up by 9 lately. FAF was in 20 hedge funds’ portfolios at the end of the third quarter of 2015. There were 11 hedge funds in our database with FAF holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as National Fuel Gas Co. (NYSE:NFG), Western Refining, Inc. (NYSE:WNR), and Chicago Bridge & Iron Company N.V. (NYSE:CBI) to gather more data points.

If you’d ask most shareholders, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are greater than an 8000 funds with their doors open at the moment, Our researchers hone in on the upper echelon of this group, about 700 funds. These hedge fund managers orchestrate the majority of all hedge funds’ total asset base, and by following their first-class equity investments, Insider Monkey has determined several investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to view the key action surrounding First American Financial Corp (NYSE:FAF).

How have hedgies been trading First American Financial Corp (NYSE:FAF)?

Heading into Q4, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 82% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Odey Asset Management Group, managed by Crispin Odey, holds the number one position in First American Financial Corp (NYSE:FAF). Odey Asset Management Group has a $39.7 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is Fisher Asset Management, led by Ken Fisher, holding a $22.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Matthew Lindenbaum’s Basswood Capital, Cliff Asness’ AQR Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Consequently, some big names were breaking ground themselves. Fisher Asset Management assembled the most valuable position in First American Financial Corp (NYSE:FAF). Marshall Wace LLP also made a $9.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Sandler’s Sandler Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Peter Muller’s PDT Partners.

Let’s now review hedge fund activity in other stocks similar to First American Financial Corp (NYSE:FAF). We will take a look at National Fuel Gas Co. (NYSE:NFG), Western Refining, Inc. (NYSE:WNR), Chicago Bridge & Iron Company N.V. (NYSE:CBI), and Trimble Navigation Limited (NASDAQ:TRMB). This group of stocks’ market values match FAF’s market value.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $457 million, versus the $393 million figure in FAF’s case. Western Refining, Inc. (NYSE:WNR) is the most popular stock in this table. On the other hand National Fuel Gas Co. (NYSE:NFG) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks First American Financial Corp (NYSE:FAF) is even less popular than NFG. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.