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Hedge Funds Getting Really Excited About Cal-Maine Foods Inc (CALM)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Cal-Maine Foods Inc (NASDAQ:CALM) based on that data.

Cal-Maine Foods Inc (NASDAQ:CALM) has experienced an increase in enthusiasm from smart money in recent months. CALM was in 26 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with CALM positions at the end of the previous quarter. Our calculations also showed that CALM 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.

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 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. 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.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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 review the recent hedge fund action surrounding Cal-Maine Foods Inc (NASDAQ:CALM).

Hedge fund activity in Cal-Maine Foods Inc (NASDAQ:CALM)

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CALM over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Cal-Maine Foods Inc (NASDAQ:CALM), which was worth $90.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $43.8 million worth of shares. Highline Capital Management, Point72 Asset Management, and Citadel 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 Highline Capital Management allocated the biggest weight to Cal-Maine Foods Inc (NASDAQ:CALM), around 4.85% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 0.89 percent of its 13F equity portfolio to CALM.

With a general bullishness amongst the heavyweights, key money managers have jumped into Cal-Maine Foods Inc (NASDAQ:CALM) headfirst. Highline Capital Management, managed by Jacob Doft, established the largest position in Cal-Maine Foods Inc (NASDAQ:CALM). Highline Capital Management had $19.9 million invested in the company at the end of the quarter. Martin Whitman’s Third Avenue Management also made a $6 million investment in the stock during the quarter. The other funds with brand new CALM positions are Dmitry Balyasny’s Balyasny Asset Management, Israel Englander’s Millennium Management, and George McCabe’s Portolan Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cal-Maine Foods Inc (NASDAQ:CALM) but similarly valued. We will take a look at PacWest Bancorp (NASDAQ:PACW), Element Solutions Inc. (NYSE:ESI), PotlatchDeltic Corporation (NASDAQ:PCH), and John Wiley & Sons Inc (NYSE:JW). This group of stocks’ market valuations resemble CALM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PACW 23 121550 -8
ESI 35 387209 -2
PCH 16 234507 0
JW 17 55212 -4
Average 22.75 199620 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $219 million in CALM’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 16 bullish hedge fund positions. Cal-Maine Foods Inc (NASDAQ:CALM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 13.2 percentage points. Unfortunately CALM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CALM were disappointed as the stock returned 1.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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