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Do Hedge Funds Love Sanderson Farms, Inc. (SAFM)?

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. In this article we look at what those investors think of Sanderson Farms, Inc. (NASDAQ:SAFM).

Sanderson Farms, Inc. (NASDAQ:SAFM) has experienced a decrease in hedge fund interest in recent months. Our calculations also showed that SAFM 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action regarding Sanderson Farms, Inc. (NASDAQ:SAFM).

What does smart money think about Sanderson Farms, Inc. (NASDAQ:SAFM)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -53% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SAFM over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Sanderson Farms, Inc. (NASDAQ:SAFM), with a stake worth $86.7 million reported as of the end of September. Trailing Renaissance Technologies was Candlestick Capital Management, which amassed a stake valued at $66.9 million. Adage Capital Management, Citadel Investment Group, and Millennium 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 Candlestick Capital Management allocated the biggest weight to Sanderson Farms, Inc. (NASDAQ:SAFM), around 2.82% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 1.13 percent of its 13F equity portfolio to SAFM.

Because Sanderson Farms, Inc. (NASDAQ:SAFM) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their positions entirely heading into Q4. At the top of the heap, Jacob Doft’s Highline Capital Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $34.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $32.8 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 19 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sanderson Farms, Inc. (NASDAQ:SAFM) but similarly valued. We will take a look at GW Pharmaceuticals plc (NASDAQ:GWPH), Schrodinger, Inc. (NASDAQ:SDGR), H&R Block, Inc. (NYSE:HRB), and Murphy USA Inc. (NYSE:MUSA). This group of stocks’ market valuations are similar to SAFM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GWPH 21 262831 -3
SDGR 15 542132 15
HRB 19 177631 -11
MUSA 24 198115 -4
Average 19.75 295177 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $330 million in SAFM’s case. Murphy USA Inc. (NYSE:MUSA) is the most popular stock in this table. On the other hand Schrodinger, Inc. (NASDAQ:SDGR) is the least popular one with only 15 bullish hedge fund positions. Sanderson Farms, Inc. (NASDAQ:SAFM) 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately SAFM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SAFM investors were disappointed as the stock returned -1.8% 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.