Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks, especially when they are screened well, can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze FreightCar America, Inc. (NASDAQ:RAIL) from the perspective of those investors.
FreightCar America, Inc. (NASDAQ:RAIL) investors should be aware of an increase in hedge fund interest recently, with ownership rising to 14. At the end of this article we will also compare RAIL to other stocks including Avalanche Biotechnologies Inc (NASDAQ:AAVL), Sparton Corporation (NYSE:SPA), and Johnson Outdoors Inc. (NASDAQ:JOUT) to get a better sense of its popularity.
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According to most market participants, hedge funds are viewed as slow, old investment tools of years past. While there are greater than 8,000 funds with their doors open today, Experts at hedge fund tracking site Insider Monkey choose to focus on the masters of this club, approximately 700 funds. These money managers handle the lion’s share of the smart money’s total asset base, and by shadowing their finest equity investments, Insider Monkey has identified a number of investment strategies that have historically beaten Mr. Market. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per year for a decade in its back tests.
Keeping this in mind, let’s take a peek at the recent action regarding FreightCar America, Inc. (NASDAQ:RAIL).
What have hedge funds been doing with FreightCar America, Inc. (NASDAQ:RAIL)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a leap of 27% from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially.
Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in FreightCar America, Inc. (NASDAQ:RAIL), worth close to $2.8 million, amounting to less than 0.1% of its total 13F portfolio. On Royce & Associates’s heels is Citadel Investment Group, led by Ken Griffin, holding a $2 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds that hold long positions consist of Cliff Asness’ AQR Capital Management, David E. Shaw’s D E Shaw, and Glenn Russell Dubin’s Highbridge Capital Management.
Consequently, specific money managers were breaking ground themselves. Highbridge Capital Management established the most outsized position in FreightCar America, Inc. (NASDAQ:RAIL). Highbridge Capital Management had $0.9 million invested in the company at the end of the quarter. Paul Tudor Jones’Tudor Investment Corp also initiated a $0.7 million position during the quarter. The following funds were also among the new RAIL investors: Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Chao Ku’s Nine Chapters Capital Management.
Let’s also review hedge fund activity in other stocks similar to FreightCar America, Inc. (NASDAQ:RAIL). We will take a look at Avalanche Biotechnologies Inc (NASDAQ:AAVL), Sparton Corporation (NYSE:SPA), Johnson Outdoors Inc. (NASDAQ:JOUT), and Western Asset Managed High Incm Fnd Inc. (NYSE:MHY). This group of stocks’ market values resemble RAIL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAVL | 19 | 54524 | -3 |
| SPA | 6 | 20340 | -1 |
| JOUT | 4 | 4296 | -1 |
| MHY | 6 | 28033 | 1 |
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That eclipsed the mere $13 million in RAIL shares that were held by the investors that we track. Avalanche Biotechnologies Inc (NASDAQ:AAVL) is the most popular stock in this table. On the other hand Johnson Outdoors Inc. (NASDAQ:JOUT) is the least popular one with only four bullish hedge fund positions. FreightCar America, Inc. (NASDAQ:RAIL) 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 AAVL might be a better candidate to consider a long position in.
