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Did Hedge Funds Make The Right Call On Snap-on Incorporated (SNA) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Snap-on Incorporated (NYSE:SNA) and determine whether the smart money was really smart about this stock.

Is Snap-on Incorporated (NYSE:SNA) a splendid investment right now? The smart money was selling. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that SNA 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.

To the average investor there are numerous signals stock market investors put to use to assess their holdings. Two of the most underrated signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can outperform the broader indices by a significant margin (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital 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. Now let’s take a look at the recent hedge fund action regarding Snap-on Incorporated (NYSE:SNA).

What have hedge funds been doing with Snap-on Incorporated (NYSE:SNA)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in SNA a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Ariel Investments held the most valuable stake in Snap-on Incorporated (NYSE:SNA), which was worth $107.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $65.1 million worth of shares. Pzena Investment Management, East Side Capital (RR Partners), and Citadel Investment Group 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 East Side Capital (RR Partners) allocated the biggest weight to Snap-on Incorporated (NYSE:SNA), around 5.65% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, designating 1.88 percent of its 13F equity portfolio to SNA.

Judging by the fact that Snap-on Incorporated (NYSE:SNA) has faced declining sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies that slashed their positions entirely last quarter. At the top of the heap, Jeffrey Gates’s Gates Capital Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $53 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Snap-on Incorporated (NYSE:SNA). We will take a look at Gaming and Leisure Properties Inc (NASDAQ:GLPI), Newell Brands Inc. (NASDAQ:NWL), Bright Horizons Family Solutions Inc (NYSE:BFAM), and Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM). This group of stocks’ market valuations are similar to SNA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLPI 35 475226 6
NWL 24 1004534 -7
BFAM 27 262204 -7
SQM 10 53846 -3
Average 24 448953 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $285 million in SNA’s case. Gaming and Leisure Properties Inc (NASDAQ:GLPI) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 10 bullish hedge fund positions. Snap-on Incorporated (NYSE:SNA) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SNA as the stock returned 28.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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