The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards FreightCar America, Inc. (NASDAQ:RAIL).
Is FreightCar America, Inc. (NASDAQ:RAIL) a bargain? The smart money is categorically reducing their bets on the stock. The number of long hedge fund bets dropped by 2 recently. RAIL was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. There were 13 hedge funds in our database with RAIL holdings at the end of the previous quarter. At the end of this article we will also compare RAIL to other stocks including Wi-LAN Inc – US listing (NASDAQ:WILN), Ceragon Networks Ltd. (NASDAQ:CRNT), and Capstar Financial Holdings Inc (NASDAQ:CSTR) to get a better sense of its popularity.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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How are hedge funds trading FreightCar America, Inc. (NASDAQ:RAIL)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a fall of 15% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in RAIL at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the biggest position in FreightCar America, Inc. (NASDAQ:RAIL), worth close to $10.3 million. On Royce & Associates’s heels is AQR Capital Management, led by Cliff Asness, which holds a $2.8 million position. Other professional money managers with similar optimism comprise Renaissance Technologies, one of the largest hedge funds in the world, D. E. Shaw’s D E Shaw and Tim Curro’s Value Holdings LP. We should note that Value Holdings LP is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that FreightCar America, Inc. (NASDAQ:RAIL) has weathered bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds that decided to sell off their positions entirely in the third quarter. Interestingly, Ken Griffin’s Citadel Investment Group sold off the biggest position of all the investors tracked by Insider Monkey, valued at an estimated $0.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $0.2 million worth.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as FreightCar America, Inc. (NASDAQ:RAIL) but similarly valued. These stocks are Wi-LAN Inc – US listing (NASDAQ:WILN), Ceragon Networks Ltd. (NASDAQ:CRNT), Capstar Financial Holdings Inc (NASDAQ:CSTR), and RTI Biologics Inc. (NASDAQ:RTIX). All of these stocks’ market caps are similar to RAIL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WILN | 3 | 2665 | -2 |
| CRNT | 5 | 5741 | 5 |
| CSTR | 4 | 11302 | 4 |
| RTIX | 13 | 30165 | -1 |
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $18 million in RAIL’s case. RTI Biologics Inc. (NASDAQ:RTIX) is the most popular stock in this table. On the other hand Wi-LAN Inc – US listing (NASDAQ:WILN) is the least popular one with only 3 bullish hedge fund positions. FreightCar America, Inc. (NASDAQ:RAIL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RTIX might be a better candidate to consider taking a long position in.
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