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This Metric Says You Are Smart to Sell Federal-Mogul Corporation (FDML)

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Is Federal-Mogul Corporation (NASDAQ:FDML) ready to raly soon? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions were cut by 2 recently.


In the eyes of most market participants, hedge funds are viewed as worthless, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, we at Insider Monkey look at the top tier of this club, about 450 funds. It is widely believed that this group has its hands on most of all hedge funds’ total asset base, and by tracking their top stock picks, we have discovered a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (see the details here).

Equally as key, optimistic insider trading activity is another way to break down the marketplace. Just as you’d expect, there are a number of motivations for an executive to sell shares of his or her company, but only one, very obvious reason why they would behave bullishly. Many academic studies have demonstrated the market-beating potential of this method if you know what to do (learn more here).

With these “truths” under our belt, it’s important to take a glance at the recent action surrounding Federal-Mogul Corporation (NASDAQ:FDML).

What does the smart money think about Federal-Mogul Corporation (NASDAQ:FDML)?

In preparation for this year, a total of 5 of the hedge funds we track were bullish in this stock, a change of -29% from one quarter earlier. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially.

Of the funds we track, Icahn Capital LP, managed by Carl Icahn, holds the most valuable position in Federal-Mogul Corporation (NASDAQ:FDML). Icahn Capital LP has a $615.1 million position in the stock, comprising 4.8% of its 13F portfolio. Coming in second is Mario Gabelli of GAMCO Investors, with a $29.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that are bullish include Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management.

Because Federal-Mogul Corporation (NASDAQ:FDML) has faced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedgies that elected to cut their entire stakes at the end of the year. It’s worth mentioning that Louis Bacon’s Moore Global Investments said goodbye to the biggest stake of the “upper crust” of funds we monitor, comprising an estimated $0.9 million in stock., and Jim Simons of Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds at the end of the year.

How have insiders been trading Federal-Mogul Corporation (NASDAQ:FDML)?

Insider buying is most useful when the company we’re looking at has experienced transactions within the past half-year. Over the last half-year time period, Federal-Mogul Corporation (NASDAQ:FDML) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Federal-Mogul Corporation (NASDAQ:FDML). These stocks are Meritor Inc (NYSE:MTOR), Superior Industries International Inc. (NYSE:SUP), Gentherm Inc (NASDAQ:THRM), Standard Motor Products, Inc. (NYSE:SMP), and Remy International Inc (NASDAQ:REMY). This group of stocks belong to the auto parts industry and their market caps resemble FDML’s market cap.

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