Forestar Group Inc. (FOR): Hedge Funds Losing Interest

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Forestar Group Inc. (NYSE:FOR) based on that data.

Is Forestar Group Inc. (NYSE:FOR) a buy here? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions went down by 5 lately. Our calculations also showed that FOR 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.


Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the fresh hedge fund action regarding Forestar Group Inc. (NYSE:FOR).

Hedge fund activity in Forestar Group Inc. (NYSE:FOR)

Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -42% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in FOR a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Long Pond Capital held the most valuable stake in Forestar Group Inc. (NYSE:FOR), which was worth $48.5 million at the end of the third quarter. On the second spot was JS Capital which amassed $1.4 million worth of shares. Islet Management, Citadel Investment Group, and Engineers Gate Manager 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 Long Pond Capital allocated the biggest weight to Forestar Group Inc. (NYSE:FOR), around 2.48% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to FOR.

Seeing as Forestar Group Inc. (NYSE:FOR) has witnessed falling interest from the aggregate hedge fund industry, we can see that there were a few money managers that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Michael Johnston’s Steelhead Partners dumped the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $36.9 million in stock. Howard Marks’s fund, Oaktree Capital Management, also said goodbye to its stock, about $10.8 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Forestar Group Inc. (NYSE:FOR) but similarly valued. These stocks are AC Immune SA (NASDAQ:ACIU), HudBay Minerals Inc.  (NYSE:HBM), National Presto Industries Inc. (NYSE:NPK), and Kelly Services, Inc. (NASDAQ:KELYA). This group of stocks’ market caps resemble FOR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACIU 11 97191 1
HBM 8 102094 -3
NPK 6 52289 -5
KELYA 13 13558 1
Average 9.5 66283 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $52 million in FOR’s case. Kelly Services, Inc. (NASDAQ:KELYA) is the most popular stock in this table. On the other hand National Presto Industries Inc. (NYSE:NPK) is the least popular one with only 6 bullish hedge fund positions. Forestar Group Inc. (NYSE:FOR) is not the least popular stock in this group but hedge fund interest is still below 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on FOR as the stock returned 46.1% during the second quarter and outperformed the market by an even larger margin.

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