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Is Armstrong Flooring, Inc. (AFI) Going To Burn These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Armstrong Flooring, Inc. (NYSE:AFI).

Armstrong Flooring, Inc. (NYSE:AFI) investors should be aware of an increase in hedge fund interest of late. AFI was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with AFI positions at the end of the previous quarter. 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 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.

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.

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

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. Let’s check out the latest hedge fund action encompassing Armstrong Flooring, Inc. (NYSE:AFI).

Hedge fund activity in Armstrong Flooring, Inc. (NYSE:AFI)

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AFI over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Nantahala Capital Management was the largest shareholder of Armstrong Flooring, Inc. (NYSE:AFI), with a stake worth $10.5 million reported as of the end of September. Trailing Nantahala Capital Management was GAMCO Investors, which amassed a stake valued at $8.8 million. ValueAct Capital, D E Shaw, and Marshall Wace 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 0.39% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to AFI.

Consequently, key money managers were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, established the most outsized position in Armstrong Flooring, Inc. (NYSE:AFI). Marshall Wace had $2.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Armstrong Flooring, Inc. (NYSE:AFI) but similarly valued. These stocks are First Western Financial, Inc. (NASDAQ:MYFW), AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), Stewardship Financial Corp (NASDAQ:SSFN), and LSI Industries, Inc. (NASDAQ:LYTS). This group of stocks’ market values are similar to AFI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MYFW 3 9054 0
AVEO 5 2750 -2
SSFN 7 13701 2
LYTS 9 18319 0
Average 6 10956 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $40 million in AFI’s case. LSI Industries, Inc. (NASDAQ:LYTS) is the most popular stock in this table. On the other hand First Western Financial, Inc. (NASDAQ:MYFW) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Armstrong Flooring, Inc. (NYSE:AFI) is more popular among hedge funds. 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. 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 -37.2% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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