Is FairPoint Communications Inc (FRP) Worthy of Your Portfolio?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

In this article, we are going to take a closer look at what smart money thinks of FairPoint Communications Inc (NASDAQ:FRP). Overall, the stock saw a decrease in interest from smart money investors in our database in the third quarter. There were 16 funds bullish on FairPoint Communications at the end of September, down from 18 funds at the end of June. At the end of this article we will also compare FRP to other stocks including Peoples Bancorp Inc. (NASDAQ:PEBO), BP Prudhoe Bay Royalty Trust (NYSE:BPT), and Landauer, Inc. (NYSE:LDR) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

cherezoff / shutterstock.com

Keeping this in mind, let’s view the key action surrounding FairPoint Communications Inc (NASDAQ:FRP).

What does the smart money think about FairPoint Communications Inc (NASDAQ:FRP)?

At the end of September, a total of 16 funds tracked by Insider Monkey were long FairPoint Communications, which represents a decline of 11% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in FRP heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, John M. Angelo and Michael L. Gordon’s Angelo Gordon & Co has the most valuable position in FairPoint Communications Inc (NASDAQ:FRP), worth close to $77.1 million, amounting to 5.8% of its total 13F portfolio. Coming in second is GoldenTree Asset Management, led by Steven Tananbaum, which holds a $23.1 million position; 7.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of Eric Edidin and Josh Lobel’s Archer Capital Management, Jim Simons’ Renaissance Technologies, and Bernard Horn’s Polaris Capital Management. We should note that Archer Capital 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.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that said goodbye to their entire stakes in the stock during the third quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the biggest position of the 700 funds followed by Insider Monkey, totaling close to $1.7 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund cut about $0.2 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to FairPoint Communications Inc (NASDAQ:FRP). We will take a look at Peoples Bancorp Inc. (NASDAQ:PEBO), BP Prudhoe Bay Royalty Trust (NYSE:BPT), Landauer, Inc. (NYSE:LDR), and NeoPhotonics Corp (NYSE:NPTN). All of these stocks’ market caps are similar to FRP’s market cap.

As you can see these stocks had an average of nine funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $158 million in FRP’s case. NeoPhotonics Corp (NYSE:NPTN) is the most popular stock in this table with 20 funds holding shares. On the other hand BP Prudhoe Bay Royalty Trust (NYSE:BPT) is the least popular one with only two bullish hedge fund positions. FairPoint Communications Inc (NASDAQ:FRP) 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 NeoPhotonics Corp (NYSE:NPTN) might be a better candidate to consider taking a long position in.