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Hedge Funds Continue Cashing Out Of 3M Company (MMM)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded 3M Company (NYSE:MMM) based on those filings.

Is 3M Company (NYSE:MMM) undervalued? Hedge funds are becoming less confident. The number of long hedge fund bets decreased by 2 lately. Our calculations also showed that MMM 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). MMM was in 44 hedge funds’ portfolios at the end of the first quarter of 2020. There were 46 hedge funds in our database with MMM positions at the end of the previous quarter.

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing 3M Company (NYSE:MMM).

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

At Q1’s end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in MMM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of 3M Company (NYSE:MMM), with a stake worth $152.4 million reported as of the end of September. Trailing Citadel Investment Group was Two Sigma Advisors, which amassed a stake valued at $81.1 million. Citadel Investment Group, AQR Capital Management, and Alyeska Investment Group 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 DSAM Partners allocated the biggest weight to 3M Company (NYSE:MMM), around 3.93% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, designating 0.85 percent of its 13F equity portfolio to MMM.

Because 3M Company (NYSE:MMM) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies that slashed their full holdings heading into Q4. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $117.9 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also sold off its stock, about $10.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as 3M Company (NYSE:MMM) but similarly valued. These stocks are British American Tobacco plc (NYSE:BTI), CVS Caremark Corporation (NYSE:CVS), QUALCOMM, Incorporated (NASDAQ:QCOM), and Starbucks Corporation (NASDAQ:SBUX). This group of stocks’ market valuations are closest to MMM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BTI 10 681088 1
CVS 71 1273110 13
QCOM 60 1621172 -7
SBUX 68 3229437 2
Average 52.25 1701202 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.25 hedge funds with bullish positions and the average amount invested in these stocks was $1701 million. That figure was $517 million in MMM’s case. CVS Caremark Corporation (NYSE:CVS) 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 10 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. 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 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 8.3% 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.