Were Hedge Funds Right About FormFactor, Inc. (FORM)?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not FormFactor, Inc. (NASDAQ:FORM) makes for a good investment right now.

FormFactor, Inc. (NASDAQ:FORM) investors should pay attention to a decrease in support from the world’s most elite money managers recently. FormFactor, Inc. (NASDAQ:FORM) was in 17 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. There were 18 hedge funds in our database with FORM holdings at the end of December. Our calculations also showed that FORM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing FormFactor, Inc. (NASDAQ:FORM).

Do Hedge Funds Think FORM Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FORM over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of FormFactor, Inc. (NASDAQ:FORM), with a stake worth $29.4 million reported as of the end of March. Trailing Arrowstreet Capital was Driehaus Capital, which amassed a stake valued at $27.8 million. Royce & Associates, Select Equity Group, and Washington Harbour Partners 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 Washington Harbour Partners allocated the biggest weight to FormFactor, Inc. (NASDAQ:FORM), around 2.44% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to FORM.

Due to the fact that FormFactor, Inc. (NASDAQ:FORM) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their full holdings in the first quarter. Interestingly, Louis Navellier’s Navellier & Associates cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $0.6 million in stock, and Karim Abbadi and Edward McBride’s Centiva Capital was right behind this move, as the fund said goodbye to about $0.5 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FormFactor, Inc. (NASDAQ:FORM) but similarly valued. We will take a look at ALLETE Inc (NYSE:ALE), Worthington Industries, Inc. (NYSE:WOR), Clearway Energy, Inc. (NYSE:CWEN), Karuna Therapeutics, Inc. (NASDAQ:KRTX), Jumia Technologies AG (NYSE:JMIA), Sendas Distribuidora S.A. (NYSE:ASAI), and Celsius Holdings, Inc. (NASDAQ:CELH). This group of stocks’ market caps match FORM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $156 million in FORM’s case. Clearway Energy, Inc. (NYSE:CWEN) is the most popular stock in this table. On the other hand Sendas Distribuidora S.A. (NYSE:ASAI) is the least popular one with only 6 bullish hedge fund positions. FormFactor, Inc. (NASDAQ:FORM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FORM is 56.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately FORM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FORM were disappointed as the stock returned -19.5% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Suggested Articles:

• Louis Navellier’s Stock Picks in 2021
• 10 Best Passive Income Stocks in 2021
• 10 Best Dating Stocks To Buy Now

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