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Did Hedge Funds Make The Right Call On Post Holdings Inc (POST) ?

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 Post Holdings Inc (NYSE:POST) based on that data and determine whether they were really smart about the stock.

Is Post Holdings Inc (NYSE:POST) undervalued? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund positions were cut by 7 recently. Our calculations also showed that POST 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.

Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to check out the new hedge fund action surrounding Post Holdings Inc (NYSE:POST).

What have hedge funds been doing with Post Holdings Inc (NYSE:POST)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in POST over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is POST A Good Stock To Buy?

Among these funds, Route One Investment Company held the most valuable stake in Post Holdings Inc (NYSE:POST), which was worth $567.9 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $194.8 million worth of shares. Diamond Hill Capital, Bridger Management, and Candlestick Capital Management 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 Route One Investment Company allocated the biggest weight to Post Holdings Inc (NYSE:POST), around 18.61% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, earmarking 6.43 percent of its 13F equity portfolio to POST.

Judging by the fact that Post Holdings Inc (NYSE:POST) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few funds that slashed their entire stakes in the first quarter. Interestingly, Michael Doheny’s Freshford Capital Management sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $47.5 million in stock. Brian Scudieri’s fund, Kehrs Ridge Capital, also sold off its stock, about $7.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 7 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Post Holdings Inc (NYSE:POST). These stocks are HubSpot Inc (NYSE:HUBS), Royal Gold, Inc (NASDAQ:RGLD), AGNC Investment Corp. (NASDAQ:AGNC), and Melco Resorts & Entertainment Limited (NASDAQ:MLCO). This group of stocks’ market valuations are closest to POST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBS 27 662117 -3
RGLD 28 237256 -2
AGNC 27 302699 6
MLCO 28 482233 -7
Average 27.5 421076 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $421 million. That figure was $1195 million in POST’s case. Royal Gold, Inc (NASDAQ:RGLD) is the most popular stock in this table. On the other hand HubSpot Inc (NYSE:HUBS) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Post Holdings Inc (NYSE:POST) is more popular among hedge funds. 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 still beat the market by 15.5 percentage points. Unfortunately POST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on POST were disappointed as the stock returned 5.6% 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.