Did Hedge Funds Make The Right Call On AGCO Corporation (AGCO) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of AGCO Corporation (NYSE:AGCO) based on that data and determine whether they were really smart about the stock.

Is AGCO Corporation (NYSE:AGCO) a buy here? Money managers were becoming less confident. The number of long hedge fund bets were trimmed by 9 in recent months. Our calculations also showed that AGCO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AGCO was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with AGCO positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to go over the recent hedge fund action surrounding AGCO Corporation (NYSE:AGCO).

How have hedgies been trading AGCO Corporation (NYSE:AGCO)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in AGCO a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in AGCO Corporation (NYSE:AGCO) was held by AQR Capital Management, which reported holding $51.1 million worth of stock at the end of September. It was followed by Impax Asset Management with a $15.6 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Lodge Hill Capital. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to AGCO Corporation (NYSE:AGCO), around 4.67% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to AGCO.

Judging by the fact that AGCO Corporation (NYSE:AGCO) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers who were dropping their positions entirely by the end of the first quarter. At the top of the heap, Lee Ainslie’s Maverick Capital said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $60.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $17.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to AGCO Corporation (NYSE:AGCO). We will take a look at TerraForm Power Inc (NASDAQ:TERP), Graphic Packaging Holding Company (NYSE:GPK), Neogen Corporation (NASDAQ:NEOG), and Leggett & Platt, Inc. (NYSE:LEG). This group of stocks’ market caps match AGCO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $126 million in AGCO’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Neogen Corporation (NASDAQ:NEOG) is the least popular one with only 16 bullish hedge fund positions. AGCO Corporation (NYSE:AGCO) is not the least popular stock in this group but hedge fund interest is still below average. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on AGCO as the stock returned 34.7% since the end of March and outperformed the market by an even larger margin.

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