We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Federal Signal Corporation (NYSE:FSS).
Is FSS a good stock to buy now? Federal Signal Corporation (NYSE:FSS) was in 16 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. FSS investors should be aware of an increase in hedge fund sentiment recently. There were 12 hedge funds in our database with FSS holdings at the end of June. Our calculations also showed that FSS 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.
Today there are a lot of gauges stock market investors employ to grade stocks. A pair of the best gauges are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can beat their index-focused peers by a healthy margin (see the details here).
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 we’re going to view the recent hedge fund action encompassing Federal Signal Corporation (NYSE:FSS).
Do Hedge Funds Think FSS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in FSS a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of Federal Signal Corporation (NYSE:FSS), with a stake worth $21.6 million reported as of the end of September. Trailing GAMCO Investors was Millennium Management, which amassed a stake valued at $7.9 million. Renaissance Technologies, Arrowstreet Capital, and Royce & Associates 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 GAMCO Investors allocated the biggest weight to Federal Signal Corporation (NYSE:FSS), around 0.24% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to FSS.
Consequently, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Federal Signal Corporation (NYSE:FSS). Arrowstreet Capital had $2.8 million invested in the company at the end of the quarter. Mika Toikka’s AlphaCrest Capital Management also initiated a $1.3 million position during the quarter. The other funds with brand new FSS positions are Michael Gelband’s ExodusPoint Capital, Paul Tudor Jones’s Tudor Investment Corp, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks similar to Federal Signal Corporation (NYSE:FSS). We will take a look at JinkoSolar Holding Co., Ltd. (NYSE:JKS), John Wiley & Sons Inc (NYSE:JW), Brandywine Realty Trust (NYSE:BDN), InterDigital, Inc. (NASDAQ:IDCC), Cronos Group Inc. (NASDAQ:CRON), Big Lots, Inc. (NYSE:BIG), and Editas Medicine, Inc. (NASDAQ:EDIT). This group of stocks’ market values are similar to FSS’s market value.
|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 16.4 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $47 million in FSS’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand JinkoSolar Holding Co., Ltd. (NYSE:JKS) is the least popular one with only 10 bullish hedge fund positions. Federal Signal Corporation (NYSE:FSS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FSS is 52.2. 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 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on FSS as the stock returned 12.6% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.