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Were Hedge Funds Right About Souring On L.B. Foster Company (FSTR)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of L.B. Foster Company (NASDAQ:FSTR) based on that data and determine whether they were really smart about the stock.

L.B. Foster Company (NASDAQ:FSTR) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that FSTR 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.

If you’d ask most investors, hedge funds are seen as slow, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We look at the upper echelon of this club, about 850 funds. These hedge fund managers have their hands on bulk of all hedge funds’ total capital, and by shadowing their best investments, Insider Monkey has brought to light various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the recent hedge fund action surrounding L.B. Foster Company (NASDAQ:FSTR).

Hedge fund activity in L.B. Foster Company (NASDAQ:FSTR)

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FSTR over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is FSTR A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ted White and Christopher Kiper’s Legion Partners Asset Management has the most valuable position in L.B. Foster Company (NASDAQ:FSTR), worth close to $12.9 million, comprising 5.5% of its total 13F portfolio. On Legion Partners Asset Management’s heels is Renaissance Technologies, which holds a $8.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish comprise Peter Schliemann’s Rutabaga Capital Management, Chuck Royce’s Royce & Associates and David P. Cohen’s Minerva Advisors. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to L.B. Foster Company (NASDAQ:FSTR), around 5.45% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, setting aside 2.07 percent of its 13F equity portfolio to FSTR.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified FSTR as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to L.B. Foster Company (NASDAQ:FSTR). These stocks are Duluth Holdings Inc. (NASDAQ:DLTH), Superior Group of Companies, Inc. (NASDAQ:SGC), Priority Technology Holdings, Inc. (NASDAQ:PRTH), and Liquidity Services, Inc. (NASDAQ:LQDT). This group of stocks’ market caps match FSTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DLTH 8 4692 -1
SGC 3 2543 -1
PRTH 3 1111 0
LQDT 7 17843 -1
Average 5.25 6547 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $31 million in FSTR’s case. Duluth Holdings Inc. (NASDAQ:DLTH) is the most popular stock in this table. On the other hand Superior Group of Companies, Inc. (NASDAQ:SGC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks L.B. Foster Company (NASDAQ:FSTR) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately FSTR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FSTR were disappointed as the stock returned 3.3% during the second quarter 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 in 2020.

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