Hedge Funds Unexpectedly Piled Into Forestar Group Inc. (NYSE:FOR)

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Forestar Group Inc. (NYSE:FOR).

Forestar Group Inc. (NYSE:FOR) was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. FOR investors should be aware of an increase in enthusiasm from smart money recently. There were 4 hedge funds in our database with FOR positions at the end of the previous quarter. Our calculations also showed that FOR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. 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

We leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action regarding Forestar Group Inc. (NYSE:FOR).

What have hedge funds been doing with Forestar Group Inc. (NYSE:FOR)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 275% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in FOR a year ago. With hedge funds’ sentiment swirling, there exist a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Do Hedge Funds Love Forestar Group Inc. (NYSE:FOR)?

Of the funds tracked by Insider Monkey, John Khoury’s Long Pond Capital has the largest position in Forestar Group Inc. (NYSE:FOR), worth close to $85.6 million, amounting to 2.2% of its total 13F portfolio. The second-largest stake is held by Joseph Samuels of Islet Management, with a $2.7 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism encompass Michael A. Price and Amos Meron’s Empyrean Capital Partners, Jonathan Soros’s JS Capital, and Benjamin A. Smith’s Laurion Capital Management. In terms of the portfolio weights assigned to each position, Long Pond Capital allocated the biggest weight to Forestar Group Inc. (NYSE:FOR), around 2.23% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to FOR.

As one would reasonably expect, some big names have jumped into Forestar Group Inc. (NYSE:FOR) headfirst. Islet Management, managed by Joseph Samuels, initiated the largest position in Forestar Group Inc. (NYSE:FOR). Islet Management had $2.7 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $2.2 million position during the quarter. The other funds with new positions in the stock are Jonathan Soros’s JS Capital, Benjamin A. Smith’s Laurion Capital Management, and David Rodriguez-Fraile’s BlueMar Capital Management.

Let’s go over hedge fund activity in other stocks similar to Forestar Group Inc. (NYSE:FOR). These stocks are The Providence Service Corporation (NASDAQ:PRSC), Diamond Offshore Drilling Inc (NYSE:DO), Cardlytics, Inc. (NASDAQ:CDLX), and NanoString Technologies Inc (NASDAQ:NSTG). This group of stocks’ market values is similar to FOR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRSC 15 174593 1
DO 14 43842 1
CDLX 18 154224 8
NSTG 18 146085 -2
Average 16.25 129686 2

View the table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $100 million in FOR’s case. Cardlytics, Inc. (NASDAQ:CDLX) is the most popular stock in this table. On the other hand, Diamond Offshore Drilling Inc (NYSE:DO) is the least popular one with only 14 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FOR as the stock returned 11.6% during the first two months of Q4 and outperformed the market by an even larger margin.

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