Hedge Funds Aren’t Crazy About Falcon Minerals Corporation (FLMN) Anymore

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Falcon Minerals Corporation (NASDAQ:FLMN) and determine whether hedge funds skillfully traded this stock.

Falcon Minerals Corporation (NASDAQ:FLMN) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. FLMN investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 22 hedge funds in our database with FLMN positions at the end of the first quarter. Our calculations also showed that FLMN 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.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Keith Meister of Corvex Capital

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 junior gold mining stock. We are also checking out this lithium company which could 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. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding Falcon Minerals Corporation (NASDAQ:FLMN).

What does smart money think about Falcon Minerals Corporation (NASDAQ:FLMN)?

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FLMN over the last 20 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.

More specifically, Samlyn Capital was the largest shareholder of Falcon Minerals Corporation (NASDAQ:FLMN), with a stake worth $7.2 million reported as of the end of September. Trailing Samlyn Capital was Nantahala Capital Management, which amassed a stake valued at $6.4 million. Corvex Capital, Angelo Gordon & Co, and MSDC Management 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 MSDC Management allocated the biggest weight to Falcon Minerals Corporation (NASDAQ:FLMN), around 0.73% of its 13F portfolio. Angelo Gordon & Co is also relatively very bullish on the stock, setting aside 0.61 percent of its 13F equity portfolio to FLMN.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: HighVista Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified FLMN as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to Falcon Minerals Corporation (NASDAQ:FLMN). These stocks are 89bio, Inc. (NASDAQ:ETNB), American National BankShares Inc (NASDAQ:AMNB), Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), Profound Medical Corp. (NASDAQ:PROF), Hometrust Bancshares Inc (NASDAQ:HTBI), Reliant Bancorp, Inc. (NASDAQ:RBNC), and Nabors Industries Ltd. (NYSE:NBR). This group of stocks’ market caps are similar to FLMN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETNB 6 149866 3
AMNB 2 4928 -1
AOSL 10 31463 -1
PROF 10 31907 2
HTBI 12 44985 0
RBNC 2 3805 -3
NBR 15 13516 -5
Average 8.1 40067 -0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.1 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $33 million in FLMN’s case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand American National BankShares Inc (NASDAQ:AMNB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Falcon Minerals Corporation (NASDAQ:FLMN) is more popular among hedge funds. Our overall hedge fund sentiment score for FLMN is 82.6. 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. 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 still beat the market by 19.3 percentage points. Unfortunately FLMN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FLMN were disappointed as the stock returned -22.9% during the third quarter 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.