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Should You Buy State Auto Financial Corporation (STFC)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded State Auto Financial Corporation (NASDAQ:STFC) based on those filings.

State Auto Financial Corporation (NASDAQ:STFC) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that STFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 today’s marketplace there are numerous gauges investors have at their disposal to grade stocks. Some of the best gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outclass the market by a healthy margin (see the details here).

David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the new hedge fund action encompassing State Auto Financial Corporation (NASDAQ:STFC).

What does smart money think about State Auto Financial Corporation (NASDAQ:STFC)?

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in STFC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of State Auto Financial Corporation (NASDAQ:STFC), with a stake worth $5.5 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $1.1 million. Citadel Investment Group, Marshall Wace LLP, and Winton 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 Winton Capital Management allocated the biggest weight to State Auto Financial Corporation (NASDAQ:STFC), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to STFC.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in State Auto Financial Corporation (NASDAQ:STFC). Citadel Investment Group had $0.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.4 million investment in the stock during the quarter.

Let’s go over hedge fund activity in other stocks similar to State Auto Financial Corporation (NASDAQ:STFC). These stocks are Nu Skin Enterprises, Inc. (NYSE:NUS), SPX FLOW, Inc. (NYSE:FLOW), Sunrun Inc (NASDAQ:RUN), and SciPlay Corporation (NASDAQ:SCPL). This group of stocks’ market caps are similar to STFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NUS 18 111349 -4
FLOW 15 117620 -1
RUN 24 367076 1
SCPL 17 80281 2
Average 18.5 169082 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $8 million in STFC’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand SPX FLOW, Inc. (NYSE:FLOW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks State Auto Financial Corporation (NASDAQ:STFC) is even less popular than FLOW. Hedge funds dodged a bullet by taking a bearish stance towards STFC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately STFC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); STFC investors were disappointed as the stock returned -27.9% during the second quarter (through June 10th) 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 so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.