Was The Smart Money Right About Fastenal Company (FAST)?

In this article we will check out the progression of hedge fund sentiment towards Fastenal Company (NASDAQ:FAST) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Hedge fund interest in Fastenal Company (NASDAQ:FAST) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that FAST isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare FAST to other stocks including Barclays PLC (NYSE:BCS), STMicroelectronics N.V. (NYSE:STM), and Nikola Corporation (NASDAQ:NKLA) to get a better sense of its popularity.

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 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 S&P 500 ETFs by 58 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 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action regarding Fastenal Company (NASDAQ:FAST).

What does smart money think about Fastenal Company (NASDAQ:FAST)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards FAST over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Cantillon Capital Management, managed by William von Mueffling, holds the number one position in Fastenal Company (NASDAQ:FAST). Cantillon Capital Management has a $266.5 million position in the stock, comprising 2.3% of its 13F portfolio. Sitting at the No. 2 spot is Route One Investment Company, led by William Duhamel, holding a $171.8 million position; the fund has 4.9% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Bryan Hinmon’s Motley Fool Asset Management. In terms of the portfolio weights assigned to each position Route One Investment Company allocated the biggest weight to Fastenal Company (NASDAQ:FAST), around 4.9% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 4.74 percent of its 13F equity portfolio to FAST.

Since Fastenal Company (NASDAQ:FAST) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of money managers that decided to sell off their entire stakes last quarter. Interestingly, Clint Carlson’s Carlson Capital dropped the biggest investment of the 750 funds followed by Insider Monkey, valued at about $35.9 million in stock. Richard SchimeláandáLawrence Sapanski’s fund, Cinctive Capital Management, also dumped its stock, about $2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Fastenal Company (NASDAQ:FAST). These stocks are Barclays PLC (NYSE:BCS), STMicroelectronics N.V. (NYSE:STM), Nikola Corporation (NASDAQ:NKLA), Marathon Petroleum Corp (NYSE:MPC), Ford Motor Company (NYSE:F), Prudential Financial Inc (NYSE:PRU), and Consolidated Edison, Inc. (NYSE:ED). All of these stocks’ market caps are similar to FAST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $634 million in FAST’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 8 bullish hedge fund positions. Fastenal Company (NASDAQ:FAST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FAST is 59.1. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately FAST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FAST were disappointed as the stock returned 2% since the end of June (through 10/30) 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 many of these stocks already outperformed the market so far this year.

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