How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Fluor Corporation (NYSE:FLR) and determine whether hedge funds had an edge regarding this stock.
Is Fluor Corporation (NYSE:FLR) a healthy stock for your portfolio? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund positions decreased by 4 in recent months. Fluor Corporation (NYSE:FLR) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that FLR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 21st century investor’s toolkit there are a lot of tools shareholders can use to value their stock investments. A couple of the less known tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best money managers can outpace their index-focused peers by a significant amount (see the details here).
John Overdeck of Two Sigma Advisors
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 after its stock price crashed. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to go over the new hedge fund action regarding Fluor Corporation (NYSE:FLR).
How have hedgies been trading Fluor Corporation (NYSE:FLR)?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in FLR over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Two Sigma Advisors held the most valuable stake in Fluor Corporation (NYSE:FLR), which was worth $30.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $27.1 million worth of shares. Empyrean Capital Partners, Electron Capital Partners, and Citadel Investment Group 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 AWH Capital allocated the biggest weight to Fluor Corporation (NYSE:FLR), around 3.2% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to FLR.
Due to the fact that Fluor Corporation (NYSE:FLR) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies who were dropping their entire stakes by the end of the second quarter. Intriguingly, Noah Levy and Eugene Dozortsev’s Newtyn Management dropped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling about $9.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $3.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks similar to Fluor Corporation (NYSE:FLR). These stocks are Korn Ferry (NYSE:KFY), Heartland Express, Inc. (NASDAQ:HTLD), Phoenix Tree Holdings Limited (NYSE:DNK), BMC Stock Holdings, Inc. (NASDAQ:BMCH), Jack in the Box Inc. (NASDAQ:JACK), Adverum Biotechnologies, Inc. (NASDAQ:ADVM), and American Assets Trust, Inc (NYSE:AAT). This group of stocks’ market valuations match FLR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KFY | 28 | 167753 | 8 |
| HTLD | 13 | 46345 | 2 |
| DNK | 3 | 22665 | 0 |
| BMCH | 26 | 307670 | 3 |
| JACK | 31 | 291611 | 3 |
| ADVM | 25 | 702737 | 0 |
| AAT | 20 | 34529 | 5 |
| Average | 20.9 | 224759 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $102 million in FLR’s case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Fluor Corporation (NYSE:FLR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FLR is 21.7. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately FLR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FLR investors were disappointed as the stock returned -27.1% in the third 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 10 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.
