Is Capitol Federal Financial, Inc. (CFFN) A Good Stock To Buy?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Capitol Federal Financial, Inc. (NASDAQ:CFFN).

Capitol Federal Financial, Inc. (NASDAQ:CFFN) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of September. At the end of this article we will also compare CFFN to other stocks including Revlon Inc (NYSE:REV), Bloomin’ Brands Inc (NASDAQ:BLMN), and Boston Beer Co Inc (NYSE:SAM) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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What have hedge funds been doing with Capitol Federal Financial, Inc. (NASDAQ:CFFN)?

Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the previous quarter. The graph below displays the number of hedge funds with bullish position in CFFN over the last 5 quarters. 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, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in Capitol Federal Financial, Inc. (NASDAQ:CFFN). Renaissance Technologies has an $86.6 million position in the stock. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $31.5 million position. Remaining members of the smart money with similar optimism comprise David M. Knott’s Dorset Management, Dmitry Balyasny’s Balyasny Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that Dorset Management 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.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dropped their positions entirely. Intriguingly, Michael Platt and William Reeves’ BlueCrest Capital Mgmt. dropped the largest investment of the 700 funds monitored by Insider Monkey, worth an estimated $0.1 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund dumped about $0.1 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Capitol Federal Financial, Inc. (NASDAQ:CFFN) but similarly valued. These stocks are Revlon Inc (NYSE:REV), Bloomin’ Brands Inc (NASDAQ:BLMN), Boston Beer Co Inc (NYSE:SAM), and The New York Times Company (NYSE:NYT). This group of stocks’ market valuations resemble CFFN’s market valuation.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $140 million in CFFN’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Revlon Inc (NYSE:REV) is the least popular one with only 9 bullish hedge fund positions. Capitol Federal Financial, Inc. (NASDAQ:CFFN) 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 NYT might be a better candidate to consider taking a long position in.

Disclosure: None