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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 FormFactor, Inc. (NASDAQ:FORM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
FormFactor, Inc. (NASDAQ:FORM) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FORM investors should be aware of an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with FORM holdings at the end of March. Our calculations also showed that FORM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the eyes of most shareholders, hedge funds are viewed as underperforming, outdated investment tools of years past. While there are over 8000 funds with their doors open at the moment, We look at the masters of this group, around 850 funds. Most estimates calculate that this group of people watch over bulk of all hedge funds’ total capital, and by shadowing their first-class equity investments, Insider Monkey has spotted many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a peek at the new hedge fund action regarding FormFactor, Inc. (NASDAQ:FORM).
How have hedgies been trading FormFactor, Inc. (NASDAQ:FORM)?
At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in FORM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in FormFactor, Inc. (NASDAQ:FORM) was held by Royce & Associates, which reported holding $20.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $18 million position. Other investors bullish on the company included Arrowstreet Capital, Driehaus Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to FormFactor, Inc. (NASDAQ:FORM), around 0.84% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, dishing out 0.53 percent of its 13F equity portfolio to FORM.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in FormFactor, Inc. (NASDAQ:FORM). Marshall Wace LLP had $4.9 million invested in the company at the end of the quarter. Robert Joseph Caruso’s Select Equity Group also initiated a $3.2 million position during the quarter. The other funds with brand new FORM positions are Mika Toikka’s AlphaCrest Capital Management, Karim Abbadi and Edward McBride’s Centiva Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as FormFactor, Inc. (NASDAQ:FORM) but similarly valued. These stocks are IGM Biosciences, Inc. (NASDAQ:IGMS), Bottomline Technologies(de), Inc. (NASDAQ:EPAY), TG Therapeutics Inc (NASDAQ:TGTX), Sabre Corporation (NASDAQ:SABR), NCR Corporation (NYSE:NCR), Independent Bank Corp (NASDAQ:INDB), and Viela Bio, Inc. (NASDAQ:VIE). This group of stocks’ market valuations match FORM’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $114 million in FORM’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 7 bullish hedge fund positions. FormFactor, Inc. (NASDAQ:FORM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FORM is 61. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately FORM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FORM were disappointed as the stock returned -15% in Q3 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.