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Hedge Funds Are Selling 3M Company (MMM)

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 3M Company (NYSE:MMM) based on that data and determine whether they were really smart about the stock.

Is 3M Company (NYSE:MMM) undervalued? The best stock pickers were getting less optimistic. The number of long hedge fund bets dropped by 2 in recent months. 3M Company (NYSE:MMM) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistics is 52. Our calculations also showed that MMM 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 44 hedge funds in our database with MMM holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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.. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s view the new hedge fund action encompassing 3M Company (NYSE:MMM).

How are hedge funds trading 3M Company (NYSE:MMM)?

At Q2’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in MMM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in 3M Company (NYSE:MMM), which was worth $690.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $153.5 million worth of shares. AQR Capital Management, Renaissance Technologies, and Markel Gayner Asset 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 Stevens Capital Management allocated the biggest weight to 3M Company (NYSE:MMM), around 1.71% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, earmarking 1.71 percent of its 13F equity portfolio to MMM.

Judging by the fact that 3M Company (NYSE:MMM) has witnessed falling interest from the smart money, it’s safe to say that there were a few money managers who were dropping their entire stakes heading into Q3. Intriguingly, Anand Parekh’s Alyeska Investment Group said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, worth about $41.5 million in stock, and Guy Shahar’s DSAM Partners was right behind this move, as the fund sold off about $22.3 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to 3M Company (NYSE:MMM). These stocks are British American Tobacco plc (NYSE:BTI), Starbucks Corporation (NASDAQ:SBUX), CVS Health Corporation (NYSE:CVS), Sony Corporation (NYSE:SNE), HDFC Bank Limited (NYSE:HDB), Fidelity National Information Services Inc. (NYSE:FIS), and BlackRock, Inc. (NYSE:BLK). All of these stocks’ market caps match MMM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTI 11 824986 1
SBUX 54 2683454 -14
CVS 65 1136206 -6
SNE 28 598881 0
HDB 42 1177218 4
FIS 111 8173639 6
BLK 37 702091 -1
Average 49.7 2185211 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.7 hedge funds with bullish positions and the average amount invested in these stocks was $2185 million. That figure was $1038 million in MMM’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 11 bullish hedge fund positions. 3M Company (NYSE:MMM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MMM is 42.7. 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. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately MMM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MMM investors were disappointed as the stock returned 5.4% since Q2 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.