Is ARMOUR Residential REIT, Inc. (ARR) A Good Stock To Buy?

Is ARMOUR Residential REIT, Inc. (NYSE:ARR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

ARMOUR Residential REIT, Inc. (NYSE:ARR) has experienced a decrease in support from the world’s most elite money managers in recent months. ARR was in 10 hedge funds’ portfolios at the end of the third quarter of 2015. There were 16 hedge funds in our database with ARR positions at the end of the previous quarter. At the end of this article we will also compare ARR to other stocks, including Griffon Corporation (NYSE:GFF), Invesco Dynamic Credit Opportunities Fd (NYSE:VTA), and NCI Building Systems, Inc. (NYSE:NCS) to get a better sense of its popularity.

If you’d ask most investors, hedge funds are viewed as worthless, old investment vehicles of years past. While there are more than 8000 funds trading at the moment, We hone in on the moguls of this group, about 700 funds. Most estimates calculate that this group of people have their hands on the majority of all hedge funds’ total capital, and by shadowing their top picks, Insider Monkey has deciphered many investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s check out the recent action regarding ARMOUR Residential REIT, Inc. (NYSE:ARR).

How have hedgies been trading ARMOUR Residential REIT, Inc. (NYSE:ARR)?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a slump of 38% from the second quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pine River Capital Management, managed by Brian Taylor, holds the largest position in ARMOUR Residential REIT, Inc. (NYSE:ARR). The fund reportedly holds a $15.1 million position in the stock, comprising 0.2% of its 13F portfolio. On Pine River Capital Management’s heels is Renaissance Technologies, led by Jim Simons, holding a $11.7 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw.

Because ARMOUR Residential REIT, Inc. (NYSE:ARR) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedgies that slashed their entire stakes last quarter. Interestingly, Stephen Feinberg’s Cerberus Capital Management cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $33.9 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $0.2 million worth of ARR shares. These moves are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ARMOUR Residential REIT, Inc. (NYSE:ARR) but similarly valued. These stocks are Griffon Corporation (NYSE:GFF), Invesco Dynamic Credit Opportunities Fd (NYSE:VTA), NCI Building Systems, Inc. (NYSE:NCS), and Net 1 UEPS Technologies Inc (NASDAQ:UEPS). This group of stocks’ market valuations are similar to ARR’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was just $39 million in ARR’s case. NCI Building Systems, Inc. (NYSE:NCS) is the most popular stock in this table, while Invesco Dynamic Credit Opportunities Fd (NYSE:VTA) is the least popular one with only 6 bullish hedge fund positions. ARMOUR Residential REIT, Inc. (NYSE:ARR) 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. In this regard NCS might be a better candidate to consider a long position.