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Hedge Funds Are Coming Back To The Hershey Company (HSY)

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 second 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 5 years and analyze what the smart money thinks of The Hershey Company (NYSE:HSY) based on that data and determine whether they were really smart about the stock.

Is The Hershey Company (NYSE:HSY) undervalued? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets rose by 6 recently. The Hershey Company (NYSE:HSY) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HSY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 33 hedge funds in our database with HSY holdings at the end of March.

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 56 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.

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s go over the key hedge fund action regarding The Hershey Company (NYSE:HSY).

What does smart money think about The Hershey Company (NYSE:HSY)?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in HSY a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in The Hershey Company (NYSE:HSY) was held by Renaissance Technologies, which reported holding $651.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $113.3 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Adage Capital Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to The Hershey Company (NYSE:HSY), around 0.56% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to HSY.

Now, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in The Hershey Company (NYSE:HSY). Balyasny Asset Management had $19.8 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $7 million investment in the stock during the quarter. The other funds with brand new HSY positions are Steve Cohen’s Point72 Asset Management, Parvinder Thiara’s Athanor Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Hershey Company (NYSE:HSY) but similarly valued. These stocks are CRH PLC (NYSE:CRH), ING Groep N.V. (NYSE:ING), TE Connectivity Ltd. (NYSE:TEL), American International Group Inc (NYSE:AIG), Cadence Design Systems Inc (NASDAQ:CDNS), The Kroger Co. (NYSE:KR), and Microchip Technology Incorporated (NASDAQ:MCHP). All of these stocks’ market caps are similar to HSY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRH 7 76935 -3
ING 13 385807 0
TEL 39 2000251 6
AIG 40 2028685 -3
CDNS 39 1090501 8
KR 41 2361525 -2
MCHP 33 890574 -5
Average 30.3 1262040 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $1262 million. That figure was $1028 million in HSY’s case. The Kroger Co. (NYSE:KR) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. The Hershey Company (NYSE:HSY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HSY is 87.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on HSY, though not to the same extent, as the stock returned 15.3% since the end of June and outperformed the market as well.

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