Should You Avoid Sanderson Farms, Inc. (SAFM)?

Sanderson Farms, Inc. (NASDAQ:SAFM) investors should pay attention to a decrease in support from the world’s most elite money managers of late.

According to most stock holders, hedge funds are perceived as unimportant, outdated investment vehicles of the past. While there are more than 8000 funds trading at the moment, we choose to focus on the upper echelon of this club, around 450 funds. It is estimated that this group controls most of all hedge funds’ total asset base, and by tracking their best stock picks, we have deciphered a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Equally as important, optimistic insider trading activity is a second way to parse down the stock market universe. Just as you’d expect, there are many reasons for an insider to cut shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Many academic studies have demonstrated the useful potential of this strategy if investors know where to look (learn more here).

With all of this in mind, we’re going to take a glance at the recent action encompassing Sanderson Farms, Inc. (NASDAQ:SAFM).

What does the smart money think about Sanderson Farms, Inc. (NASDAQ:SAFM)?

At Q1’s end, a total of 12 of the hedge funds we track were long in this stock, a change of -29% from the first quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially.

According to our comprehensive database, Royce & Associates, managed by Chuck Royce, holds the largest position in Sanderson Farms, Inc. (NASDAQ:SAFM). Royce & Associates has a $140.1 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which held a $9.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedgies with similar optimism include Jim Simons’s Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group.

Since Sanderson Farms, Inc. (NASDAQ:SAFM) has witnessed falling interest from hedge fund managers, it’s safe to say that there were a few funds that slashed their entire stakes in Q1. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the largest stake of the 450+ funds we watch, comprising close to $42.8 million in stock., and Neil Chriss of Hutchin Hill Capital was right behind this move, as the fund cut about $4.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds in Q1.

Insider trading activity in Sanderson Farms, Inc. (NASDAQ:SAFM)

Insider buying is most useful when the company we’re looking at has seen transactions within the past 180 days. Over the last six-month time frame, Sanderson Farms, Inc. (NASDAQ:SAFM) has experienced zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Sanderson Farms, Inc. (NASDAQ:SAFM). These stocks are Annies Inc (NYSE:BNNY), Lancaster Colony Corp. (NASDAQ:LANC), Dole Food Company, Inc. (NYSE:DOLE), Cal-Maine Foods Inc (NASDAQ:CALM), and Post Holdings Inc (NYSE:POST). This group of stocks are the members of the food – major diversified industry and their market caps are similar to SAFM’s market cap.