Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Fastenal Company (NASDAQ:FAST).
Fastenal Company (NASDAQ:FAST) was in 17 hedge funds’ portfolios at the end of September. FAST has seen a decrease in hedge fund interest of late. There were 19 hedge funds in our database with FAST positions at the end of the previous quarter. At the end of this article we will also compare FAST to other stocks including Plains GP Holdings LP (NYSE:PAGP), McCormick & Company, Incorporated (NYSE:MKC), and Vanguard Short Term Corporate Bond ETF (NASDAQ:VCSH) to get a better sense of its popularity.
With all of this in mind, let’s take a glance at the key action surrounding Fastenal Company (NASDAQ:FAST).
What have hedge funds been doing with Fastenal Company (NASDAQ:FAST)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the number one position in Fastenal Company (NASDAQ:FAST). Select Equity Group has a $95 million position in the stock, comprising 0.9% of its 13F portfolio. On Select Equity Group’s heels is Bares Capital Management, led by Brian Bares, holding a $56.1 million position; 5.6% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass William Duhamel’s Route One Investment Company, Joel Greenblatt’s Gotham Asset Management and Greg Poole’s Echo Street Capital Management.
Seeing as Fastenal Company (NASDAQ:FAST) has faced bearish sentiment from the smart money, we can see that there is a sect of hedge funds that slashed their positions entirely by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of all the hedgies tracked by Insider Monkey, worth about $16.2 million in stock, and John Kim’s Night Owl Capital Management was right behind this move, as the fund said goodbye to about $8.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fastenal Company (NASDAQ:FAST) but similarly valued. These stocks are Plains GP Holdings LP (NYSE:PAGP), McCormick & Company, Incorporated (NYSE:MKC), Vanguard Short Term Corporate Bond ETF (NASDAQ:VCSH), and Enbridge Energy Partners, L.P. (NYSE:EEP). This group of stocks’ market values match FAST’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $301 million in FAST’s case. Plains GP Holdings LP (NYSE:PAGP) is the most popular stock in this table. On the other hand Vanguard Short Term Corporate Bond ETF (NASDAQ:VCSH) is the least popular one with only 4 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PAGP might be a better candidate to consider a long position.