Is First American Financial Corp (NYSE:FAF) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is FAF stock a buy or sell? First American Financial Corp (NYSE:FAF) was in 39 hedge funds’ portfolios at the end of December. The all time high for this statistic is 44. FAF has experienced a decrease in hedge fund sentiment in recent months. There were 42 hedge funds in our database with FAF positions at the end of the third quarter. Our calculations also showed that FAF isn’t among the 30 most popular stocks among hedge funds (click for Q4 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Now we’re going to review the recent hedge fund action surrounding First American Financial Corp (NYSE:FAF).
Do Hedge Funds Think FAF Is A Good Stock To Buy Now?
At the end of December, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the third quarter of 2020. On the other hand, there were a total of 42 hedge funds with a bullish position in FAF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ariel Investments held the most valuable stake in First American Financial Corp (NYSE:FAF), which was worth $225.5 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $73.4 million worth of shares. Lakewood Capital Management, Fisher Asset Management, and Clough Capital Partners 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 MIG Capital allocated the biggest weight to First American Financial Corp (NYSE:FAF), around 3.27% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, dishing out 2.91 percent of its 13F equity portfolio to FAF.
Due to the fact that First American Financial Corp (NYSE:FAF) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few fund managers that slashed their entire stakes by the end of the fourth quarter. At the top of the heap, James Dinan’s York Capital Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $27.2 million in stock. Spencer M. Waxman’s fund, Shannon River Fund Management, also dumped its stock, about $9.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the fourth quarter.
Let’s check out hedge fund activity in other stocks similar to First American Financial Corp (NYSE:FAF). These stocks are Berkeley Lights, Inc. (NASDAQ:BLI), Western Midstream Partners, LP (NYSE:WES), FLIR Systems, Inc. (NASDAQ:FLIR), BWX Technologies Inc (NYSE:BWXT), JFrog Ltd. (NASDAQ:FROG), Sasol Limited (NYSE:SSL), and Ternium S.A. (NYSE:TX). This group of stocks’ market valuations are similar to FAF’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $750 million in FAF’s case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks First American Financial Corp (NYSE:FAF) is more popular among hedge funds. Our overall hedge fund sentiment score for FAF is 78.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on FAF, though not to the same extent, as the stock returned 4.8% since the end of December (through March 19th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.