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Do Hedge Funds Love Cal-Maine Foods Inc (CALM)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Keeping this in mind, let’s analyze whether Cal-Maine Foods Inc (NASDAQ:CALM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Cal-Maine Foods Inc (NASDAQ:CALM) has seen a decrease in hedge fund interest lately. Our calculations also showed that CALM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the 21st century investor’s toolkit there are numerous signals investors have at their disposal to appraise their stock investments. Two of the most innovative signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can outperform their index-focused peers by a significant amount (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action surrounding Cal-Maine Foods Inc (NASDAQ:CALM).

What have hedge funds been doing with Cal-Maine Foods Inc (NASDAQ:CALM)?

Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the third quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in CALM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is CALM A Good Stock To Buy?

More specifically, Diamond Hill Capital was the largest shareholder of Cal-Maine Foods Inc (NASDAQ:CALM), with a stake worth $87.4 million reported as of the end of September. Trailing Diamond Hill Capital was Renaissance Technologies, which amassed a stake valued at $45.9 million. Sabrepoint Capital, Point72 Asset Management, and Sabrepoint Capital 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 Sabrepoint Capital allocated the biggest weight to Cal-Maine Foods Inc (NASDAQ:CALM), around 3.15% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, earmarking 3.03 percent of its 13F equity portfolio to CALM.

Since Cal-Maine Foods Inc (NASDAQ:CALM) has witnessed a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $3.3 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dropped about $2.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Cal-Maine Foods Inc (NASDAQ:CALM). These stocks are SPX FLOW, Inc. (NASDAQ:FLOW), Baozun Inc (NASDAQ:BZUN), Corrections Corp Of America (NYSE:CXW), and BGC Partners, Inc. (NASDAQ:BGCP). This group of stocks’ market caps match CALM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLOW 16 212749 4
BZUN 15 44965 -2
CXW 25 199275 6
BGCP 27 292768 5
Average 20.75 187439 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $173 million in CALM’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Baozun Inc (NASDAQ:BZUN) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Cal-Maine Foods Inc (NASDAQ:CALM) is even less popular than BZUN. Hedge funds clearly dropped the ball on CALM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on CALM as the stock returned -4% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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