Hedge Funds Are Done Buying Fastenal Company (FAST)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fastenal Company (NASDAQ:FAST) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Fastenal Company (NASDAQ:FAST) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that FAST isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 Barclays PLC (NYSE:BCS), STMicroelectronics N.V. (NYSE:STM), and Nikola Corporation (NASDAQ:NKLA) to gather more data points. Our calculations also showed that FAST isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie of Maverick Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to review the recent hedge fund action encompassing Fastenal Company (NASDAQ:FAST).

What does smart money think about Fastenal Company (NASDAQ:FAST)?

At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FAST over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Cantillon Capital Management held the most valuable stake in Fastenal Company (NASDAQ:FAST), which was worth $266.5 million at the end of the third quarter. On the second spot was Route One Investment Company which amassed $171.8 million worth of shares. Millennium Management, D E Shaw, and Motley Fool 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 Route One Investment Company allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 4.9% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, designating 4.74 percent of its 13F equity portfolio to FAST.

Due to the fact that Fastenal Company (NASDAQ:FAST) has experienced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers that elected to cut their positions entirely last quarter. Intriguingly, Clint Carlson’s Carlson Capital said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $35.9 million in stock, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management was right behind this move, as the fund dropped about $2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Fastenal Company (NASDAQ:FAST). These stocks are Barclays PLC (NYSE:BCS), STMicroelectronics N.V. (NYSE:STM), Nikola Corporation (NASDAQ:NKLA), Marathon Petroleum Corp (NYSE:MPC), Ford Motor Company (NYSE:F), Prudential Financial Inc (NYSE:PRU), and Consolidated Edison, Inc. (NYSE:ED). This group of stocks’ market caps resemble FAST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $634 million in FAST’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 8 bullish hedge fund positions. Fastenal Company (NASDAQ:FAST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FAST is 59.1. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on FAST, though not to the same extent, as the stock returned 14.7% since the end of June and outperformed the market as well.

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