Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Armstrong Flooring, Inc. (NYSE:AFI) to find out whether there were any major changes in hedge funds’ views.
Is AFI a good stock to buy now? Armstrong Flooring, Inc. (NYSE:AFI) was in 12 hedge funds’ portfolios at the end of September. The all time high for this statistics is 18. AFI investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 15 hedge funds in our database with AFI holdings at the end of June. Our calculations also showed that AFI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s take a peek at the latest hedge fund action encompassing Armstrong Flooring, Inc. (NYSE:AFI).
Do Hedge Funds Think AFI Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AFI over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, GAMCO Investors held the most valuable stake in Armstrong Flooring, Inc. (NYSE:AFI), which was worth $6.7 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $5.4 million worth of shares. ValueAct Capital, Renaissance Technologies, and D E Shaw 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 Nantahala Capital Management allocated the biggest weight to Armstrong Flooring, Inc. (NYSE:AFI), around 0.16% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to AFI.
Judging by the fact that Armstrong Flooring, Inc. (NYSE:AFI) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few funds who were dropping their positions entirely in the third quarter. It’s worth mentioning that Andrew Rechtschaffen’s AREX Capital Management dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $2.5 million in stock. Donald Sussman’s fund, Paloma Partners, also dropped its stock, about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Armstrong Flooring, Inc. (NYSE:AFI) but similarly valued. We will take a look at Consumer Portfolio Services, Inc. (NASDAQ:CPSS), Issuer Direct Corporation (NYSE:ISDR), Kitov Pharma Ltd. (NASDAQ:KTOV), Hill International Inc (NYSE:HIL), Evolution Petroleum Corporation (NYSE:EPM), Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN), and Mammoth Energy Services, Inc. (NASDAQ:TUSK). This group of stocks’ market caps are closest to AFI’s market cap.
|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 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $23 million in AFI’s case. Hill International Inc (NYSE:HIL) is the most popular stock in this table. On the other hand Consumer Portfolio Services, Inc. (NASDAQ:CPSS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Armstrong Flooring, Inc. (NYSE:AFI) is more popular among hedge funds. Our overall hedge fund sentiment score for AFI is 72. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately AFI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AFI were disappointed as the stock returned 3.2% since the end of the third quarter (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.