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. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about FormFactor, Inc. (NASDAQ:FORM) in this article.
Is FormFactor, Inc. (NASDAQ:FORM) a buy here? Money managers are taking an optimistic view. The number of bullish hedge fund positions rose by 3 recently. Our calculations also showed that FORM 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).
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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a peek at the key hedge fund action surrounding FormFactor, Inc. (NASDAQ:FORM).
Hedge fund activity in FormFactor, Inc. (NASDAQ:FORM)
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in FORM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in FormFactor, Inc. (NASDAQ:FORM). Royce & Associates has a $25.4 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $22.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Crosslink Capital allocated the biggest weight to FormFactor, Inc. (NASDAQ:FORM), around 1.27% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to FORM.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. PDT Partners, managed by Peter Muller, assembled the most valuable position in FormFactor, Inc. (NASDAQ:FORM). PDT Partners had $1.3 million invested in the company at the end of the quarter. Josh Goldberg’s G2 Investment Partners Management also initiated a $0.9 million position during the quarter. The other funds with brand new FORM positions are Ian Simm’s Impax Asset Management, Brandon Haley’s Holocene Advisors, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as FormFactor, Inc. (NASDAQ:FORM) but similarly valued. These stocks are Patterson Companies, Inc. (NASDAQ:PDCO), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Karuna Therapeutics, Inc. (NASDAQ:KRTX), and Great Western Bancorp Inc (NYSE:GWB). This group of stocks’ market values are closest to FORM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PDCO | 25 | 182608 | 3 |
| APLS | 31 | 417192 | 7 |
| KRTX | 15 | 136671 | 6 |
| GWB | 17 | 47873 | 6 |
| Average | 22 | 196086 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $129 million in FORM’s case. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is the most popular stock in this table. On the other hand Karuna Therapeutics, Inc. (NASDAQ:KRTX) is the least popular one with only 15 bullish hedge fund positions. FormFactor, Inc. (NASDAQ:FORM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately FORM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FORM investors were disappointed as the stock returned -21.4% 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 most of these stocks already outperformed the market in 2020.
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.
