Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Frontline Ltd (NYSE:FRO).
Is FRO a good stock to buy now? Frontline Ltd (NYSE:FRO) has experienced a decrease in enthusiasm from smart money lately. Frontline Ltd (NYSE:FRO) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 24. There were 12 hedge funds in our database with FRO holdings at the end of June. Our calculations also showed that FRO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Frontline Ltd (NYSE:FRO).
Do Hedge Funds Think FRO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FRO over the last 21 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Odey Asset Management Group held the most valuable stake in Frontline Ltd (NYSE:FRO), which was worth $7.4 million at the end of the third quarter. On the second spot was D E Shaw which amassed $2.9 million worth of shares. Citadel Investment Group, Marshall Wace LLP, and Arosa Capital Management 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 Odey Asset Management Group allocated the biggest weight to Frontline Ltd (NYSE:FRO), around 1.01% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to FRO.
Seeing as Frontline Ltd (NYSE:FRO) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who were dropping their positions entirely last quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners cut the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $1 million in stock. Lee Ainslie’s fund, Maverick Capital, also said goodbye to its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Frontline Ltd (NYSE:FRO) but similarly valued. We will take a look at WW International, Inc. (NASDAQ:WW), Alamo Group, Inc. (NYSE:ALG), Vasta Platform Limited (NASDAQ:VSTA), Holly Energy Partners, L.P. (NYSE:HEP), Hailiang Education Group Inc. (NASDAQ:HLG), Columbia Financial, Inc. (NASDAQ:CLBK), and Aphria Inc. (NYSE:APHA). All of these stocks’ market caps are closest to FRO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $16 million in FRO’s case. WW International, Inc. (NASDAQ:WW) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 1 bullish hedge fund positions. Frontline Ltd (NYSE:FRO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FRO is 32.8. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately FRO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FRO were disappointed as the stock returned 0.5% since the end of September (through 12/8) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.