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How Did Fair Isaac Corporation (FICO) Perform In Comparison to Hedge Fund Favorites in 2019?

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Fair Isaac Corporation (NYSE:FICO).

Is Fair Isaac Corporation (NYSE:FICO) a buy right now? Hedge funds are buying. The number of long hedge fund positions advanced by 6 lately. Our calculations also showed that FICO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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’ 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to analyze the latest hedge fund action surrounding Fair Isaac Corporation (NYSE:FICO).

What have hedge funds been doing with Fair Isaac Corporation (NYSE:FICO)?

At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the second quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in FICO a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is FICO A Good Stock To Buy?

More specifically, Newbrook Capital Advisors was the largest shareholder of Fair Isaac Corporation (NYSE:FICO), with a stake worth $117.7 million reported as of the end of September. Trailing Newbrook Capital Advisors was Citadel Investment Group, which amassed a stake valued at $105.3 million. Valley Forge Capital, AQR Capital Management, and Fisher Asset 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 Valley Forge Capital allocated the biggest weight to Fair Isaac Corporation (NYSE:FICO), around 22.56% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, earmarking 10.77 percent of its 13F equity portfolio to FICO.

As aggregate interest increased, specific money managers have jumped into Fair Isaac Corporation (NYSE:FICO) headfirst. Point State Capital, managed by Zach Schreiber, created the most outsized position in Fair Isaac Corporation (NYSE:FICO). Point State Capital had $38.4 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also initiated a $20.2 million position during the quarter. The other funds with brand new FICO positions are Michael Gelband’s ExodusPoint Capital, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Matthew Iorio’s White Elm Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fair Isaac Corporation (NYSE:FICO) but similarly valued. We will take a look at Huntington Ingalls Industries Inc (NYSE:HII), WEX Inc (NYSE:WEX), Medical Properties Trust, Inc. (NYSE:MPW), and Qorvo Inc (NASDAQ:QRVO). This group of stocks’ market values are similar to FICO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HII 19 589653 -4
WEX 25 474044 -6
MPW 12 241800 -1
QRVO 35 1240574 7
Average 22.75 636518 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $873 million in FICO’s case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Fair Isaac Corporation (NYSE:FICO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FICO as the stock returned 101.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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