Does Resolute Forest Products Inc (NYSE:RFP) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail unconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.
Resolute Forest Products Inc (NYSE:RFP) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that RFP isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s view the latest hedge fund action encompassing Resolute Forest Products Inc (NYSE:RFP).
What does the smart money think about Resolute Forest Products Inc (NYSE:RFP)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2018. On the other hand, there were a total of 17 hedge funds with a bullish position in RFP at the beginning of this year. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Fairfax Financial Holdings was the largest shareholder of Resolute Forest Products Inc (NYSE:RFP), with a stake worth $395.6 million reported as of the end of September. Trailing Fairfax Financial Holdings was Chou Associates Management, which amassed a stake valued at $59.2 million. Renaissance Technologies, Millennium Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized call position in Resolute Forest Products Inc (NYSE:RFP). PEAK6 Capital Management had $2.2 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $1.5 million position during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Resolute Forest Products Inc (NYSE:RFP) but similarly valued. These stocks are Retrophin Inc (NASDAQ:RTRX), TriCo Bancshares (NASDAQ:TCBK), Weis Markets, Inc. (NYSE:WMK), and Astec Industries, Inc. (NASDAQ:ASTE). This group of stocks’ market caps are similar to RFP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTRX | 22 | 482411 | 3 |
| TCBK | 11 | 46732 | 0 |
| WMK | 15 | 89216 | 1 |
| ASTE | 10 | 126988 | 3 |
| Average | 14.5 | 186337 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $534 million in RFP’s case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Astec Industries, Inc. (NASDAQ:ASTE) is the least popular one with only 10 bullish hedge fund positions. Resolute Forest Products Inc (NYSE:RFP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RTRX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
