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Is Ferro Corporation (FOE) Going to Burn These Hedge Funds?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Ferro Corporation (NYSE:FOE) from the perspective of those elite funds.

Ferro Corporation (NYSE:FOE) has seen an increase in activity from the world’s largest hedge funds in recent months. FOE was in 18 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with FOE holdings at the end of the previous quarter. Our calculations also showed that FOE isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Chuck Royce

We’re going to take a gander at the new hedge fund action encompassing Ferro Corporation (NYSE:FOE).

Hedge fund activity in Ferro Corporation (NYSE:FOE)

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in FOE at the beginning of this year. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

FOE_dec2018

More specifically, GAMCO Investors was the largest shareholder of Ferro Corporation (NYSE:FOE), with a stake worth $101.3 million reported as of the end of September. Trailing GAMCO Investors was Luminus Management, which amassed a stake valued at $70.7 million. Scopus Asset Management, Millennium Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key money managers were leading the bulls’ herd. Cruiser Capital Advisors, managed by Keith M. Rosenbloom, established the most valuable position in Ferro Corporation (NYSE:FOE). Cruiser Capital Advisors had $2.9 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $2 million investment in the stock during the quarter. The following funds were also among the new FOE investors: Steve Cohen’s Point72 Asset Management, Brandon Haley’s Holocene Advisors, and Frederick DiSanto’s Ancora Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Ferro Corporation (NYSE:FOE). We will take a look at Franks International NV (NYSE:FI), Pattern Energy Group Inc (NASDAQ:PEGI), Chesapeake Lodging Trust (NYSE:CHSP), and Columbia Financial, Inc. (NASDAQ:CLBK). All of these stocks’ market caps are similar to FOE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FI 11 39270 6
PEGI 9 23059 1
CHSP 9 9673 1
CLBK 7 25066 1
Average 9 24267 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $291 million in FOE’s case. Franks International NV (NYSE:FI) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Ferro Corporation (NYSE:FOE) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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