Was The Smart Money Right About frontdoor, inc. (FTDR)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards frontdoor, inc. (NASDAQ:FTDR) and determine whether hedge funds skillfully traded this stock.

frontdoor, inc. (NASDAQ:FTDR) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 41. FTDR investors should pay attention to an increase in hedge fund interest lately. There were 33 hedge funds in our database with FTDR positions at the end of the second quarter. Our calculations also showed that FTDR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing frontdoor, inc. (NASDAQ:FTDR).

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

At third quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTDR over the last 25 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard Mashaal’s Rima Senvest Management has the largest position in frontdoor, inc. (NASDAQ:FTDR), worth close to $105.4 million, comprising 3% of its total 13F portfolio. The second largest stake is held by Impactive Capital, led by Lauren Taylor Wolfe, holding a $94 million position; the fund has 7.4% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Renaissance Technologies, David Brown’s Hawk Ridge Management and Brian Gootzeit and Andrew Frank’s StackLine Partners. In terms of the portfolio weights assigned to each position StackLine Partners allocated the biggest weight to frontdoor, inc. (NASDAQ:FTDR), around 16.05% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, setting aside 15.8 percent of its 13F equity portfolio to FTDR.

Now, key hedge funds have been driving this bullishness. Highside Global Management, managed by Zach Petrone, established the largest position in frontdoor, inc. (NASDAQ:FTDR). Highside Global Management had $9.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $4.3 million investment in the stock during the quarter. The following funds were also among the new FTDR investors: Donald Sussman’s Paloma Partners, Jinghua Yan’s TwinBeech Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as frontdoor, inc. (NASDAQ:FTDR) but similarly valued. We will take a look at Apple Hospitality REIT Inc (NYSE:APLE), Altra Industrial Motion Corp. (NASDAQ:AIMC), Box, Inc. (NYSE:BOX), Resideo Technologies, Inc. (NYSE:REZI), Enact Holdings Inc. (NASDAQ:ACT), Macquarie Infrastructure Corporation (NYSE:MIC), and Academy Sports and Outdoors, Inc. (NASDAQ:ASO). This group of stocks’ market caps are closest to FTDR’s market cap.

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As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $574 million in FTDR’s case. Academy Sports and Outdoors, Inc. (NASDAQ:ASO) is the most popular stock in this table. On the other hand Altra Industrial Motion Corp. (NASDAQ:AIMC) is the least popular one with only 14 bullish hedge fund positions. frontdoor, inc. (NASDAQ:FTDR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTDR is 66.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, FTDR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FTDR were disappointed as the stock returned -13.4% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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

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