Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Forestar Group Inc. (NYSE:FOR) a buy right now? Money managers are in a pessimistic mood. The number of bullish hedge fund positions fell by 3 in recent months. Our calculations also showed that FOR isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most stock holders, hedge funds are seen as unimportant, old investment vehicles of the past. While there are greater than 8000 funds in operation at the moment, We hone in on the crème de la crème of this club, about 750 funds. It is estimated that this group of investors manage most of all hedge funds’ total asset base, and by paying attention to their best picks, Insider Monkey has found a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the new hedge fund action encompassing Forestar Group Inc. (NYSE:FOR).
What have hedge funds been doing with Forestar Group Inc. (NYSE:FOR)?
Heading into the third quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FOR over the last 16 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, John Khoury’s Long Pond Capital has the biggest position in Forestar Group Inc. (NYSE:FOR), worth close to $75.7 million, amounting to 2.3% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $0.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism include Ken Griffin’s Citadel Investment Group, Chuck Royce’s Royce & Associates and .
Seeing as Forestar Group Inc. (NYSE:FOR) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few hedge funds that decided to sell off their entire stakes in the second quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the largest stake of the 750 funds followed by Insider Monkey, comprising close to $5 million in stock. Ken Heebner’s fund, Capital Growth Management, also dumped its stock, about $2.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks similar to Forestar Group Inc. (NYSE:FOR). These stocks are Century Communities, Inc (NYSE:CCS), Malibu Boats Inc (NASDAQ:MBUU), Franklin Street Properties Corp. (NYSE:FSP), and Stock Yards Bancorp, Inc. (NASDAQ:SYBT). This group of stocks’ market values are closest to FOR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCS | 17 | 137530 | 1 |
| MBUU | 17 | 103028 | -1 |
| FSP | 6 | 33455 | -2 |
| SYBT | 6 | 13083 | -1 |
| Average | 11.5 | 71774 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $77 million in FOR’s case. Century Communities, Inc (NYSE:CCS) is the most popular stock in this table. On the other hand Franklin Street Properties Corp. (NYSE:FSP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Forestar Group Inc. (NYSE:FOR) is even less popular than FSP. Hedge funds dodged a bullet by taking a bearish stance towards FOR. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FOR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FOR investors were disappointed as the stock returned -6.5% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
