We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards L.B. Foster Co (NASDAQ:FSTR), and what that likely means for the prospects of the company and its stock.
L.B. Foster Co (NASDAQ:FSTR) was in 9 hedge funds’ portfolios at the end of the third quarter of 2016. FSTR has seen a decrease in hedge fund interest of late. There were 11 hedge funds in our database with FSTR holdings at the end of the previous quarter. At the end of this article we will also compare FSTR to other stocks including The Eastern Company (NASDAQ:EML), Accuride Corporation (NYSE:ACW), and Intevac, Inc. (NASDAQ:IVAC) to get a better sense of its popularity.
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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 does the smart money think about L.B. Foster Co (NASDAQ:FSTR)?
Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FSTR over the last 5 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, one of the biggest hedge funds in the world has the largest position in L.B. Foster Co (NASDAQ:FSTR), worth close to $2 million. The second most bullish fund manager is Jim Simons’ Renaissance Technologies, with a $1.5 million position. Other peers that hold long positions comprise Chuck Royce’s Royce & Associates, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management. We should note that none of these hedge funds are 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.
Because L.B. Foster Co (NASDAQ:FSTR) has sustained declining sentiment from the smart money, it’s easy to see that there exists a select few money managers that slashed their positions entirely last quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management dropped the biggest investment of the 700 funds monitored by Insider Monkey, totaling an estimated $0.3 million in stock, and Tim Curro’s Value Holdings LP was right behind this move, as the fund dumped about $0.2 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks similar to L.B. Foster Co (NASDAQ:FSTR). We will take a look at The Eastern Company (NASDAQ:EML), Accuride Corporation (NYSE:ACW), Intevac, Inc. (NASDAQ:IVAC), and Luby’s, Inc. (NYSE:LUB). This group of stocks’ market caps are similar to FSTR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EML | 5 | 24198 | 0 |
| ACW | 16 | 34734 | 5 |
| IVAC | 7 | 20333 | 0 |
| LUB | 4 | 10914 | 0 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $7 million in FSTR’s case. Accuride Corporation (NYSE:ACW) is the most popular stock in this table. On the other hand Luby’s, Inc. (NYSE:LUB) is the least popular one with only 4 bullish hedge fund positions. L.B. Foster Co (NASDAQ:FSTR) 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 ACW might be a better candidate to consider taking a long position in.
Disclosure: None
