Should I Avoid FRP Holdings Inc (FRPH)?

In this article we are going to use hedge fund sentiment as a tool and determine whether FRP Holdings Inc (NASDAQ:FRPH) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is FRP Holdings Inc (NASDAQ:FRPH) a splendid investment now? Money managers were selling. The number of bullish hedge fund positions were cut by 3 in recent months. FRP Holdings Inc (NASDAQ:FRPH) was in 6 hedge funds’ portfolios at the end of March. The all time high for this statistic is 9. Our calculations also showed that FRPH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 9 hedge funds in our database with FRPH positions at the end of the fourth quarter.

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Eric Sprott of Sprott Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a look at the fresh hedge fund action encompassing FRP Holdings Inc (NASDAQ:FRPH).

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

At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in FRPH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Royce & Associates was the largest shareholder of FRP Holdings Inc (NASDAQ:FRPH), with a stake worth $15.1 million reported as of the end of March. Trailing Royce & Associates was Third Avenue Management, which amassed a stake valued at $7.4 million. Sprott Asset Management, Intrepid Capital Management, and Renaissance Technologies 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 Intrepid Capital Management allocated the biggest weight to FRP Holdings Inc (NASDAQ:FRPH), around 1.17% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 0.98 percent of its 13F equity portfolio to FRPH.

Due to the fact that FRP Holdings Inc (NASDAQ:FRPH) has experienced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds who sold off their entire stakes by the end of the first quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $0.3 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to FRP Holdings Inc (NASDAQ:FRPH). We will take a look at Atreca, Inc. (NASDAQ:BCEL), OncoCyte Corporation (NYSE:OCX), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), City Office REIT Inc (NYSE:CIO), Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), Nesco Holdings, Inc. (NYSE:NSCO), and Accuray Incorporated (NASDAQ:ARAY). This group of stocks’ market valuations match FRPH’s market valuation.

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As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $32 million in FRPH’s case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand Nesco Holdings, Inc. (NYSE:NSCO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks FRP Holdings Inc (NASDAQ:FRPH) is even less popular than NSCO. Our overall hedge fund sentiment score for FRPH is 22. 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 clearly dropped the ball on FRPH as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on FRPH as the stock returned 26.9% since Q1 (through June 25th) and outperformed the market by an even larger margin.

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

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