Astoria Financial Corp (AF): Are Hedge Funds Right About This Stock?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

In this article, we’ll try to determine whether Astoria Financial Corp (NYSE:AF) represents a good investment based on its popularity among smart money investors. Overall, during the third quarter, the number of funds from our database long the stock declined by four. At the end of this article we will also compare AF to other stocks including SAGE Therapeutics Inc (NASDAQ:SAGE), Horace Mann Educators Corporation (NYSE:HMN), and Park National Corporation (NYSEMKT:PRK) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Now, let’s take a look at the latest action regarding Astoria Financial Corp (NYSE:AF).

What does the smart money think about Astoria Financial Corp (NYSE:AF)?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AF over the last 5 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Matthew Lindenbaum’s Basswood Capital has the number one position in Astoria Financial Corp (NYSE:AF), worth close to $25 million, amounting to 1.2% of its total 13F portfolio. Coming in second is Renaissance Technologies, one of the largest hedge funds in the world, with a $21.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism contain Neil Chriss’ Hutchin Hill Capital, Alec Litowitz and Ross Laser’s Magnetar Capital, and D. E. Shaw’s D E Shaw. 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.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. Interestingly, Bernard Horn’s Polaris Capital Management cashed in the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $17 million in stock. John Orrico’s fund, Water Island Capital, also said goodbye to its stock, about $11.3 million worth.

Let’s now review hedge fund activity in other stocks similar to Astoria Financial Corp (NYSE:AF). These stocks are SAGE Therapeutics Inc (NASDAQ:SAGE), Horace Mann Educators Corporation (NYSE:HMN), Park National Corporation (NYSEMKT:PRK), and Crestwood Equity Partners LP (NYSE:CEQP). This group of stocks’ market caps resemble AF’s market cap.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $100 million in AF’s case. SAGE Therapeutics Inc (NASDAQ:SAGE) is the most popular stock in this table. On the other hand Park National Corporation (NYSEMKT:PRK) is the least popular one with only four bullish hedge fund positions. Astoria Financial Corp (NYSE:AF) is not the least popular stock in this group but hedge fund interest is in-line with the average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SAGE might be a better candidate to consider taking a long position in.

Disclosure: None