Is Fortuna Silver Mines Inc. (FSM) A Good Stock To Buy ?

Reymerlyn Martin

Fri, Jun 28, 2019, 6:07 PM

Does Fortuna Silver Mines Inc. (NYSE:FSM) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Fortuna Silver Mines Inc. (NYSE:FSM) the right pick for your portfolio? Investors who are in the know are getting less bullish. The number of long hedge fund bets shrunk by 2 recently. Our calculations also showed that FSM isn't among the 30 most popular stocks among hedge funds. FSM was in 13 hedge funds' portfolios at the end of the first quarter of 2019. There were 15 hedge funds in our database with FSM holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Let's take a peek at the new hedge fund action encompassing Fortuna Silver Mines Inc. (NYSE:FSM).

How have hedgies been trading Fortuna Silver Mines Inc. (NYSE:FSM)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FSM over the last 15 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Jim Simons's Renaissance Technologies has the largest position in Fortuna Silver Mines Inc. (NYSE:FSM), worth close to $22.6 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Eric Sprott of Sprott Asset Management, with a $7.1 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and D. E. Shaw's D E Shaw.

Judging by the fact that Fortuna Silver Mines Inc. (NYSE:FSM) has faced bearish sentiment from the smart money, we can see that there is a sect of hedge funds who sold off their full holdings in the third quarter. At the top of the heap, Mark Broach's Manatuck Hill Partners cut the biggest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $0.2 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund sold off about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Fortuna Silver Mines Inc. (NYSE:FSM). These stocks are Lands' End, Inc. (NASDAQ:LE), Koppers Holdings Inc. (NYSE:KOP), The First Bancshares, Inc. (NASDAQ:FBMS), and QCR Holdings, Inc. (NASDAQ:QCRH). This group of stocks' market values resemble FSM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LE,14,107631,1 KOP,13,40875,2 FBMS,8,29781,3 QCRH,10,58309,1 Average,11.25,59149,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $42 million in FSM's case. Lands' End, Inc. (NASDAQ:LE) is the most popular stock in this table. On the other hand The First Bancshares, Inc. (NASDAQ:FBMS) is the least popular one with only 8 bullish hedge fund positions. Fortuna Silver Mines Inc. (NYSE:FSM) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FSM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FSM were disappointed as the stock returned -19.1% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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