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Did Hedge Funds Make The Right Call On Forward Air Corporation (FWRD) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Forward Air Corporation (NASDAQ:FWRD) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Forward Air Corporation (NASDAQ:FWRD) worth your attention right now? Investors who are in the know were taking a bearish view. The number of long hedge fund positions went down by 3 lately. Our calculations also showed that FWRD 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). FWRD was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with FWRD holdings at the end of the previous quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to review the fresh hedge fund action surrounding Forward Air Corporation (NASDAQ:FWRD).

What have hedge funds been doing with Forward Air Corporation (NASDAQ:FWRD)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in FWRD a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is FWRD A Good Stock To Buy?

Among these funds, Royce & Associates held the most valuable stake in Forward Air Corporation (NASDAQ:FWRD), which was worth $37.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $12.4 million worth of shares. Arrowstreet Capital, GLG Partners, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Forward Air Corporation (NASDAQ:FWRD), around 0.51% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to FWRD.

Judging by the fact that Forward Air Corporation (NASDAQ:FWRD) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies that decided to sell off their full holdings in the first quarter. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $11.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund sold off about $2.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Forward Air Corporation (NASDAQ:FWRD). These stocks are Builders FirstSource, Inc. (NASDAQ:BLDR), Shake Shack Inc (NYSE:SHAK), Adtalem Global Education Inc. (NYSE:ATGE), and 8×8, Inc. (NASDAQ:EGHT). This group of stocks’ market valuations are closest to FWRD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BLDR 29 303590 -11
SHAK 22 393753 -3
ATGE 12 268581 -8
EGHT 20 368670 6
Average 20.75 333649 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $79 million in FWRD’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Adtalem Global Education Inc. (NYSE:ATGE) is the least popular one with only 12 bullish hedge fund positions. Forward Air Corporation (NASDAQ:FWRD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately FWRD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FWRD investors were disappointed as the stock returned 2.5% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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