Did Hedge Funds Make The Right Call On Jacobs Engineering Group Inc. (J) ?

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 Jacobs Engineering Group Inc. (NYSE:J) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Jacobs Engineering Group Inc. (NYSE:J) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that J 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

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At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the key hedge fund action surrounding Jacobs Engineering Group Inc. (NYSE:J).

How are hedge funds trading Jacobs Engineering Group Inc. (NYSE:J)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards J over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Jacobs Engineering Group Inc. (NYSE:J), with a stake worth $542.7 million reported as of the end of September. Trailing Select Equity Group was Suvretta Capital Management, which amassed a stake valued at $87.8 million. Samlyn Capital, Empyrean Capital Partners, and Valinor Management LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Jacobs Engineering Group Inc. (NYSE:J), around 7.19% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, dishing out 4.66 percent of its 13F equity portfolio to J.

Since Jacobs Engineering Group Inc. (NYSE:J) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies that elected to cut their positions entirely in the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $38.1 million in stock. Clint Murray’s fund, Lodge Hill Capital, also sold off its stock, about $32.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Jacobs Engineering Group Inc. (NYSE:J). These stocks are KB Financial Group, Inc. (NYSE:KB), IDEX Corporation (NYSE:IEX), Roku, Inc. (NASDAQ:ROKU), and Bio-Rad Laboratories, Inc. (NYSE:BIO). This group of stocks’ market caps are closest to J’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KB 7 37837 2
IEX 33 535440 10
ROKU 35 182267 1
BIO 39 874653 -5
Average 28.5 407549 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $996 million in J’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 7 bullish hedge fund positions. Jacobs Engineering Group Inc. (NYSE:J) 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. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately J wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); J investors were disappointed as the stock returned 7.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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