Is FAST Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fastenal Company (NASDAQ:FAST).

Is FAST stock a buy? Fastenal Company (NASDAQ:FAST) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Fastenal Company (NASDAQ:FAST) was in 30 hedge funds’ portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that FAST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s review the fresh hedge fund action encompassing Fastenal Company (NASDAQ:FAST).

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

At fourth quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in FAST a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Cantillon Capital Management held the most valuable stake in Fastenal Company (NASDAQ:FAST), which was worth $299 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $46.1 million worth of shares. D E Shaw, Millennium Management, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 4.34% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, designating 2.24 percent of its 13F equity portfolio to FAST.

Because Fastenal Company (NASDAQ:FAST) has faced a decline in interest from the smart money, we can see that there is a sect of fund managers that slashed their entire stakes last quarter. Interestingly, William Duhamel’s Route One Investment Company dumped the largest stake of the 750 funds watched by Insider Monkey, valued at close to $124.5 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dropped its stock, about $18.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Fastenal Company (NASDAQ:FAST). We will take a look at Simon Property Group, Inc (NYSE:SPG), McKesson Corporation (NYSE:MCK), AMETEK, Inc. (NYSE:AME), American Water Works Company, Inc. (NYSE:AWK), Discover Financial Services (NYSE:DFS), Southwest Airlines Co. (NYSE:LUV), and Corning Incorporated (NYSE:GLW). This group of stocks’ market caps are closest to FAST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $837 million. That figure was $612 million in FAST’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand AMETEK, Inc. (NYSE:AME) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Fastenal Company (NASDAQ:FAST) is even less popular than AME. Our overall hedge fund sentiment score for FAST is 20.7. 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. Hedge funds dodged a bullet by taking a bearish stance towards FAST. Our calculations showed that the top 20 most popular hedge fund stocks returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th but managed to beat the market again by 1.5 percentage points. Unfortunately FAST wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was very bearish); FAST investors were disappointed as the stock returned 4.5% since the end of the fourth quarter (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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