Is Franklin Financial Network Inc (FSB) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Franklin Financial Network Inc (NYSE:FSB) a splendid investment now? The best stock pickers are unmistakably taking a bullish view. The number of bullish hedge fund bets that are revealed through 13F filings rose by 4 recently. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Conyers Park Acquisition Corp. (NASDAQ:CPAA), Navigator Holdings Ltd (NYSE:NVGS), and First Foundation Inc (NASDAQ:FFWM) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

How are hedge funds trading Franklin Financial Network Inc (NYSE:FSB)?

At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 100% jump from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FSB over the last 5 quarters, which has been somewhat volatile. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Driehaus Capital, led by Richard Driehaus, holds the biggest position in Franklin Financial Network Inc (NYSE:FSB). Driehaus Capital has a $2.7 million position in the stock. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, which holds a $1 million position. Some other professional money managers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Louis Navellier’s Navellier & Associates, and Millennium Management, one of the 10 largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Consequently, key hedge funds were leading the bulls’ herd. Driehaus Capital created the largest position in Franklin Financial Network Inc (NYSE:FSB). Arrowstreet Capital also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management and Cliff Asness’ AQR Capital Management.

Let’s now review hedge fund activity in other stocks similar to Franklin Financial Network Inc (NYSE:FSB). We will take a look at Conyers Park Acquisition Corp. (NASDAQ:CPAA), Navigator Holdings Ltd (NYSE:NVGS), First Foundation Inc (NASDAQ:FFWM), and Resource Capital Corp. (NYSE:RSO). This group of stocks’ market caps are closest to FSB’s market cap.

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 $116 million. That figure was $6 million in FSB’s case. Conyers Park Acquisition Corp. (NASDAQ:CPAA) is the most popular stock in this table. On the other hand Resource Capital Corp. (NYSE:RSO) is the least popular one with only 2 bullish hedge fund positions. Franklin Financial Network Inc (NYSE:FSB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CPAA might be a better candidate to consider taking a long position in.

Disclosure: None