Smart Money Is Losing Confidence In Deere & Company (DE)

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Deere & Company (NYSE:DE).

Deere & Company (NYSE:DE) was in 27 hedge funds’ portfolios at the end of September. DE has seen a decrease in activity from the world’s largest hedge funds lately. There were 33 hedge funds in our database with DE positions at the end of the previous quarter. At the end of this article we will also compare DE to other stocks including Cardinal Health, Inc. (NYSE:CAH), Edison International (NYSE:EIX), and LinkedIn Corp (NYSE:LNKD) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Deere & Company (NYSE:DE)?

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 18% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the biggest position in Deere & Company (NYSE:DE), worth close to $1.8 billion, accounting for 1.4% of its total 13F portfolio. The second most bullish fund manager is Generation Investment Management, led by David Blood and Al Gore, holding a $583.6 million position; 6.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism encompass Bob Peck and Andy Raab’s FPR Partners, Jim Simons’ Renaissance Technologies and Gabriel Plotkin’s Melvin Capital Management.

Judging by the fact that Deere & Company (NYSE:DE) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes last quarter. At the top of the heap, Jean-Marie Eveillard’s First Eagle Investment Management dropped the biggest stake of the 700 funds watched by Insider Monkey, valued at about $425.7 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also said goodbye to its stock, about $29.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 6 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Deere & Company (NYSE:DE). We will take a look at Cardinal Health, Inc. (NYSE:CAH), Edison International (NYSE:EIX), LinkedIn Corp (NYSE:LNKD), and Archer Daniels Midland Company (NYSE:ADM). All of these stocks’ market caps resemble DE’s market cap.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1.71 billion. That figure was $3.32 billion in DE’s case. LinkedIn Corp (NYSE:LNKD) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 19 bullish hedge fund positions. Deere & Company (NYSE:DE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LNKD might be a better candidate to consider a long position.

Disclosure: None