Are Hedge Funds Finally Done Buying Fair Isaac Corporation (FICO)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Fair Isaac Corporation (NYSE:FICO) in this article.

Is Fair Isaac Corporation (NYSE:FICO) the right investment to pursue these days? The best stock pickers are getting more optimistic. The number of bullish hedge fund positions increased by 1 in recent months. Our calculations also showed that FICO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). FICO was in 45 hedge funds’ portfolios at the end of December. There were 44 hedge funds in our database with FICO positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the fresh hedge fund action surrounding Fair Isaac Corporation (NYSE:FICO).

Hedge fund activity in Fair Isaac Corporation (NYSE:FICO)

At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FICO over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FICO A Good Stock To Buy?

The largest stake in Fair Isaac Corporation (NYSE:FICO) was held by Melvin Capital Management, which reported holding $215.4 million worth of stock at the end of September. It was followed by Ako Capital with a $153.4 million position. Other investors bullish on the company included Newbrook Capital Advisors, Valley Forge Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Valley Forge Capital allocated the biggest weight to Fair Isaac Corporation (NYSE:FICO), around 24.26% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, dishing out 12.22 percent of its 13F equity portfolio to FICO.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most outsized position in Fair Isaac Corporation (NYSE:FICO). Melvin Capital Management had $215.4 million invested in the company at the end of the quarter. Nicolai Tangen’s Ako Capital also initiated a $153.4 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, Philip Hilal’s Clearfield Capital, and William Heard’s Heard Capital.

Let’s go over hedge fund activity in other stocks similar to Fair Isaac Corporation (NYSE:FICO). These stocks are Aramark (NYSE:ARMK), PerkinElmer, Inc. (NYSE:PKI), Eastman Chemical Company (NYSE:EMN), and Teva Pharmaceutical Industries Limited (NYSE:TEVA). This group of stocks’ market caps are similar to FICO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARMK 36 2127604 1
PKI 20 841222 -5
EMN 32 493987 2
TEVA 23 943507 -1
Average 27.75 1101580 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1102 million. That figure was $1457 million in FICO’s case. Aramark (NYSE:ARMK) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Fair Isaac Corporation (NYSE:FICO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately FICO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FICO were disappointed as the stock returned -35.8% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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