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Did Hedge Funds Make The Right Call On Jabil Inc. (JBL)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Jabil Inc. (NYSE:JBL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Jabil Inc. (NYSE:JBL) investors should pay attention to a decrease in hedge fund sentiment in recent months. Our calculations also showed that JBL 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).

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

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. Keeping this in mind let’s analyze the recent hedge fund action regarding Jabil Inc. (NYSE:JBL).

How have hedgies been trading Jabil Inc. (NYSE:JBL)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -41% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in JBL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is JBL A Good Stock To Buy?

The largest stake in Jabil Inc. (NYSE:JBL) was held by AQR Capital Management, which reported holding $129.5 million worth of stock at the end of September. It was followed by Adage Capital Management with a $40.3 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Jabil Inc. (NYSE:JBL), around 1.55% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, dishing out 0.83 percent of its 13F equity portfolio to JBL.

Since Jabil Inc. (NYSE:JBL) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few hedgies that slashed their positions entirely by the end of the first quarter. Intriguingly, Israel Englander’s Millennium Management cut the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $26 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $4.5 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 14 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Jabil Inc. (NYSE:JBL). These stocks are Ritchie Bros. Auctioneers (NYSE:RBA), GrubHub Inc (NYSE:GRUB), Clearway Energy, Inc. (NYSE:CWEN), and Nomad Foods Limited (NYSE:NOMD). This group of stocks’ market valuations resemble JBL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBA 14 178380 -7
GRUB 32 373032 -1
CWEN 17 169906 -6
NOMD 34 444046 -1
Average 24.25 291341 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $253 million in JBL’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers (NYSE:RBA) is the least popular one with only 14 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) 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 JBL as the stock returned 37.8% since the end of March and outperformed the market by an even larger margin.

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