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Did Hedge Funds Make The Right Call On Fastenal Company (FAST) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fastenal Company (NASDAQ:FAST) and determine whether hedge funds had an edge regarding this stock.

Fastenal Company (NASDAQ:FAST) investors should be aware of an increase in hedge fund sentiment lately. FAST was in 34 hedge funds’ portfolios at the end of March. There were 33 hedge funds in our database with FAST holdings at the end of the previous quarter. Our calculations also showed that FAST isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the new hedge fund action surrounding Fastenal Company (NASDAQ:FAST).

What does smart money think about Fastenal Company (NASDAQ:FAST)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FAST over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, William Duhamel’s Route One Investment Company has the largest position in Fastenal Company (NASDAQ:FAST), worth close to $272.1 million, corresponding to 8.9% of its total 13F portfolio. Sitting at the No. 2 spot is Cantillon Capital Management, led by William von Mueffling, holding a $192.7 million position; 2.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions include Clint Carlson’s Carlson Capital, Bryan Hinmon’s Motley Fool Asset Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Route One Investment Company allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 8.92% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, setting aside 4.07 percent of its 13F equity portfolio to FAST.

Now, key hedge funds were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, initiated the largest position in Fastenal Company (NASDAQ:FAST). Carlson Capital had $35.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $8.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Michael Cowley’s Sandbar Asset Management, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.

Let’s check out hedge fund activity in other stocks similar to Fastenal Company (NASDAQ:FAST). These stocks are Interactive Brokers Group, Inc. (NASDAQ:IBKR), Fortis Inc. (NYSE:FTS), Wipro Limited (NYSE:WIT), and Corteva, Inc. (NYSE:CTVA). All of these stocks’ market caps are similar to FAST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBKR 22 779568 -7
FTS 15 347098 1
WIT 7 56972 -5
CTVA 36 509655 9
Average 20 423323 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $423 million. That figure was $588 million in FAST’s case. Corteva, Inc. (NYSE:CTVA) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Fastenal Company (NASDAQ:FAST) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on FAST as the stock returned 38% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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