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Hedge Funds Are Dumping Jacobs Engineering Group Inc. (J)

In this article you are going to find out whether hedge funds think Jacobs Engineering Group Inc. (NYSE:J) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Jacobs Engineering Group Inc. (NYSE:J) undervalued? Prominent investors are taking a bearish view. The number of bullish hedge fund positions retreated by 7 recently. Our calculations also showed that J 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.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. 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. Keeping this in mind we’re going to analyze the key hedge fund action surrounding Jacobs Engineering Group Inc. (NYSE:J).

How have hedgies been trading Jacobs Engineering Group Inc. (NYSE:J)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards J over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Jacobs Engineering Group Inc. (NYSE:J) was held by Select Equity Group, which reported holding $542.7 million worth of stock at the end of September. It was followed by Suvretta Capital Management with a $87.8 million position. Other investors bullish on the company included Samlyn Capital, Empyrean Capital Partners, and Valinor Management LLC. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Jacobs Engineering Group Inc. (NYSE:J), around 7.19% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, dishing out 4.66 percent of its 13F equity portfolio to J.

Seeing as Jacobs Engineering Group Inc. (NYSE:J) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds who were dropping their full holdings by the end of the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest position of all the hedgies watched by Insider Monkey, valued at about $38.1 million in stock. Clint Murray’s fund, Lodge Hill Capital, also dumped its stock, about $32.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Jacobs Engineering Group Inc. (NYSE:J). We will take a look at KB Financial Group, Inc. (NYSE:KB), IDEX Corporation (NYSE:IEX), Roku, Inc. (NASDAQ:ROKU), and Bio-Rad Laboratories, Inc. (NYSE:BIO). This group of stocks’ market caps match J’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KB 7 37837 2
IEX 33 535440 10
ROKU 35 182267 1
BIO 39 874653 -5
Average 28.5 407549 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $996 million in J’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 7 bullish hedge fund positions. Jacobs Engineering Group Inc. (NYSE:J) 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately J wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); J investors were disappointed as the stock returned 6.3% 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.