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Did Hedge Funds Make The Right Call On Sonoco Products Company (SON) ?

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 Sonoco Products Company (NYSE:SON) and determine whether the smart money was really smart about this stock.

Sonoco Products Company (NYSE:SON) has seen a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that SON 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. Now let’s take a peek at the latest hedge fund action surrounding Sonoco Products Company (NYSE:SON).

What have hedge funds been doing with Sonoco Products Company (NYSE:SON)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SON over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Sonoco Products Company (NYSE:SON), which was worth $38.1 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $21 million worth of shares. AQR Capital Management, Royce & Associates, and GAMCO Investors 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 Appian Way Asset Management allocated the biggest weight to Sonoco Products Company (NYSE:SON), around 2.47% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, earmarking 0.42 percent of its 13F equity portfolio to SON.

Due to the fact that Sonoco Products Company (NYSE:SON) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies who were dropping their entire stakes in the first quarter. Interestingly, Ray Dalio’s Bridgewater Associates cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1.4 million in stock, and Farnum Brown and Adam Seitchik’s Arjuna Capital was right behind this move, as the fund dumped about $1.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sonoco Products Company (NYSE:SON) but similarly valued. We will take a look at Credit Acceptance Corp. (NASDAQ:CACC), Tallgrass Energy, LP (NYSE:TGE), BWX Technologies Inc (NYSE:BWXT), and Tech Data Corp (NASDAQ:TECD). This group of stocks’ market values are closest to SON’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CACC 22 581386 -9
TGE 38 692822 7
BWXT 24 107937 2
TECD 39 797204 5
Average 30.75 544837 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $122 million in SON’s case. Tech Data Corp (NASDAQ:TECD) is the most popular stock in this table. On the other hand Credit Acceptance Corp. (NASDAQ:CACC) is the least popular one with only 22 bullish hedge fund positions. Sonoco Products Company (NYSE:SON) 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 SON wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SON investors were disappointed as the stock returned 13.9% 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.