Did Hedge Funds Make The Right Call On Kellogg Company (K) ?

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 Kellogg Company (NYSE:K) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Kellogg Company (NYSE:K) investors should be aware of an increase in enthusiasm from smart money in recent months. Our calculations also showed that K 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.

Clint Carlson of Carlson Capital

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 let’s take a glance at the key hedge fund action surrounding Kellogg Company (NYSE:K).

What does smart money think about Kellogg Company (NYSE:K)?

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards K over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is K A Good Stock To Buy?

The largest stake in Kellogg Company (NYSE:K) was held by Renaissance Technologies, which reported holding $206 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $128.3 million position. Other investors bullish on the company included Diamond Hill Capital, Pzena Investment Management, and GAMCO Investors. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Kellogg Company (NYSE:K), around 2.58% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, dishing out 0.92 percent of its 13F equity portfolio to K.

As aggregate interest increased, some big names were breaking ground themselves. Diamond Hill Capital, managed by Ric Dillon, initiated the most outsized position in Kellogg Company (NYSE:K). Diamond Hill Capital had $86.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $10.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Mark Coe’s Intrinsic Edge Capital, and Ray Dalio’s Bridgewater Associates.

Let’s go over hedge fund activity in other stocks similar to Kellogg Company (NYSE:K). These stocks are Waste Connections, Inc. (NYSE:WCN), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Cummins Inc. (NYSE:CMI), and Liberty Broadband Corp (NASDAQ:LBRDK). This group of stocks’ market values match K’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WCN 33 464735 -4
BBVA 8 142085 0
CMI 34 326816 -5
LBRDK 45 3334060 -1
Average 30 1066924 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1067 million. That figure was $611 million in K’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately K wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on K were disappointed as the stock returned 11.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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