Was The Smart Money Right About frontdoor, inc. (FTDR)?
Keeping this in mind, let's analyze whether frontdoor, inc. (NASDAQ:FTDR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is frontdoor, inc. (NASDAQ:FTDR) going to take off soon? The best stock pickers were taking an optimistic view. The number of long hedge fund bets improved by 8 recently. frontdoor, inc. (NASDAQ:FTDR) was in 41 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FTDR 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).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Harold Levy of Iridian Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. Keeping this in mind let's go over the recent hedge fund action surrounding frontdoor, inc. (NASDAQ:FTDR).
What does smart money think about frontdoor, inc. (NASDAQ:FTDR)?
At the end of the second quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FTDR over the last 20 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in frontdoor, inc. (NASDAQ:FTDR), worth close to $101.2 million, corresponding to 0.1% of its total 13F portfolio. On Renaissance Technologies's heels is Iridian Asset Management, led by David Cohen and Harold Levy, holding a $87.5 million position; 1.9% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Richard Mashaal's Rima Senvest Management, Lee Ainslie's Maverick Capital and Jeffrey Hoffner's Engle Capital. In terms of the portfolio weights assigned to each position Cowbird Capital allocated the biggest weight to frontdoor, inc. (NASDAQ:FTDR), around 16.31% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, earmarking 14.01 percent of its 13F equity portfolio to FTDR.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the largest position in frontdoor, inc. (NASDAQ:FTDR). Millennium Management had $10.1 million invested in the company at the end of the quarter. Roberto Mignone's Bridger Management also made a $10 million investment in the stock during the quarter. The following funds were also among the new FTDR investors: Peter Seuss's Prana Capital Management, Michael Gelband's ExodusPoint Capital, and Schonfeld Strategic Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as frontdoor, inc. (NASDAQ:FTDR) but similarly valued. We will take a look at LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), SL Green Realty Corp (NYSE:SLG), Cannae Holdings, Inc. (NYSE:CNNE), Cloudera, Inc. (NYSE:CLDR), Ballard Power Systems Inc. (NASDAQ:BLDP), and Novanta Inc. (NASDAQ:NOVT). This group of stocks' market valuations resemble FTDR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREE,15,102759,-6 HXL,18,230973,-9 SLG,26,258760,3 CNNE,43,596426,23 CLDR,33,855546,7 BLDP,16,76980,6 NOVT,18,103718,8 Average,24.1,317880,4.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $746 million in FTDR's case. Cannae Holdings, Inc. (NYSE:CNNE) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 bullish hedge fund positions. frontdoor, inc. (NASDAQ:FTDR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTDR is 86.4. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately FTDR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FTDR were disappointed as the stock returned -6.9% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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