Here is What Hedge Funds Think About First American Financial Corp (FAF)

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 the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in First American Financial Corp (NYSE:FAF)? The smart money sentiment can provide an answer to this question.

Is First American Financial Corp (NYSE:FAF) the right pick for your portfolio? Money managers were becoming less confident. The number of bullish hedge fund bets shrunk by 2 in recent months. First American Financial Corp (NYSE:FAF) was in 29 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. Our calculations also showed that FAF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 31 hedge funds in our database with FAF positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind we’re going to take a look at the key hedge fund action encompassing First American Financial Corp (NYSE:FAF).

Glenn Greenberg of Brave Warrior Capital

Do Hedge Funds Think FAF Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FAF over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in First American Financial Corp (NYSE:FAF) was held by HG Vora Capital Management, which reported holding $637 million worth of stock at the end of September. It was followed by Ariel Investments with a $353.1 million position. Other investors bullish on the company included Lakewood Capital Management, D E Shaw, and Clough Capital Partners. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to First American Financial Corp (NYSE:FAF), around 24.14% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, designating 4.31 percent of its 13F equity portfolio to FAF.

Due to the fact that First American Financial Corp (NYSE:FAF) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of money managers that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of all the hedgies watched by Insider Monkey, totaling close to $4.4 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $3.2 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as First American Financial Corp (NYSE:FAF) but similarly valued. These stocks are Capri Holdings Limited (NYSE:CPRI), IAA, Inc. (NYSE:IAA), Alaska Air Group, Inc. (NYSE:ALK), PVH Corp (NYSE:PVH), Pearson PLC (NYSE:PSO), Chemed Corporation (NYSE:CHE), and Legend Biotech Corporation (NASDAQ:LEGN). This group of stocks’ market valuations are similar to FAF’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $798 million. That figure was $1505 million in FAF’s case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 8 bullish hedge fund positions. First American Financial Corp (NYSE:FAF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FAF is 50.4. 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 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on FAF as the stock returned 10.6% since the end of Q3 (through 11/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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