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Hedge Funds Are Selling Conagra Brands, Inc. (CAG)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Conagra Brands, Inc. (NYSE:CAG).

Is Conagra Brands, Inc. (NYSE:CAG) a healthy stock for your portfolio? Hedge funds are turning less bullish. The number of long hedge fund bets fell by 9 in recent months. Our calculations also showed that CAG isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CAG_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the recent hedge fund action surrounding Conagra Brands, Inc. (NYSE:CAG).

How are hedge funds trading Conagra Brands, Inc. (NYSE:CAG)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in CAG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Barry Rosenstein JANA PARTNERS

Among these funds, JANA Partners held the most valuable stake in Conagra Brands, Inc. (NYSE:CAG), which was worth $396.8 million at the end of the second quarter. On the second spot was GAMCO Investors which amassed $53.1 million worth of shares. Moreover, Soros Fund Management, Citadel Investment Group, and Adage Capital Management were also bullish on Conagra Brands, Inc. (NYSE:CAG), allocating a large percentage of their portfolios to this stock.

Due to the fact that Conagra Brands, Inc. (NYSE:CAG) has witnessed a decline in interest from the smart money, we can see that there exists a select few hedge funds that slashed their full holdings heading into Q3. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $48 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $23.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 9 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Conagra Brands, Inc. (NYSE:CAG). We will take a look at PagSeguro Digital Ltd. (NYSE:PAGS), Hologic, Inc. (NASDAQ:HOLX), Cna Financial Corporation (NYSE:CNA), and UDR, Inc. (NYSE:UDR). All of these stocks’ market caps are closest to CAG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAGS 30 1381371 0
HOLX 32 778134 9
CNA 12 87925 -2
UDR 16 645705 -2
Average 22.5 723284 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $608 million in CAG’s case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Conagra Brands, Inc. (NYSE:CAG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CAG as the stock returned 16.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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