Is Flagstar Bancorp Inc (FBC) A Good Stock To Buy?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Flagstar Bancorp Inc (NYSE:FBC) .

Flagstar Bancorp Inc (NYSE:FBC) was in 10 hedge funds’ portfolios at the end of September. FBC investors should pay attention to a decrease in hedge fund sentiment of late. There were 13 hedge funds in our database with FBC holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Lifelock Inc (NYSE:LOCK), Colliers International Group Inc (NASDAQ:CIGI), and Plexus Corp. (NASDAQ:PLXS) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, we’re going to take a glance at the recent action surrounding Flagstar Bancorp Inc (NYSE:FBC).

Hedge fund activity in Flagstar Bancorp Inc (NYSE:FBC)

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in FBC over the last 5 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in Flagstar Bancorp Inc (NYSE:FBC). Renaissance Technologies has a $16.9 million position in the stock. Coming in second is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital which holds a $16 million position. Other peers that are bullish contain Israel Englander’s Millennium Management, D E Shaw and Cliff Asness’ AQR Capital 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.

Judging by the fact that Flagstar Bancorp Inc (NYSE:FBC) has sustained falling interest from the smart money, it’s safe to say that there were a few hedge funds who sold off their full holdings last quarter. It’s worth mentioning that Mark Kingdon’s Kingdon Capital got rid of the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $8.2 million in stock. Porter Collins, Daniel Moses, and Vincent Daniel’s fund, Seawolf Capital, also sold off its stock, about $7.3 million worth.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Flagstar Bancorp Inc (NYSE:FBC) but similarly valued. We will take a look at Lifelock Inc (NYSE:LOCK), Colliers International Group Inc (NASDAQ:CIGI), Plexus Corp. (NASDAQ:PLXS), and Halozyme Therapeutics, Inc. (NASDAQ:HALO). All of these stocks’ market caps match FBC’s market cap.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $67 million in FBC’s case. Lifelock Inc (NYSE:LOCK) is the most popular stock in this table. On the other hand Colliers International Group Inc (NASDAQ:CIGI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Flagstar Bancorp Inc (NYSE:FBC) is as less popular than CIGI. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None