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Hedge Funds Were Getting Burned By Snap-on Incorporated (SNA) Before The Coronavirus

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Snap-on Incorporated (NYSE:SNA).

Snap-on Incorporated (NYSE:SNA) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare SNA to other stocks including Kirkland Lake Gold Ltd. (NYSE:KL), AngloGold Ashanti Limited (NYSE:AU), and Caesars Entertainment Corp (NASDAQ:CZR) to get a better sense of its popularity.

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding Snap-on Incorporated (NYSE:SNA).

What have hedge funds been doing with Snap-on Incorporated (NYSE:SNA)?

Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SNA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Ariel Investments held the most valuable stake in Snap-on Incorporated (NYSE:SNA), which was worth $165.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $115.4 million worth of shares. Pzena Investment Management, Arrowstreet Capital, and Gates Capital 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 East Side Capital (RR Partners) allocated the biggest weight to Snap-on Incorporated (NYSE:SNA), around 5.29% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, setting aside 2.32 percent of its 13F equity portfolio to SNA.

Seeing as Snap-on Incorporated (NYSE:SNA) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedgies that slashed their full holdings by the end of the third quarter. Intriguingly, D. E. Shaw’s D E Shaw said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, worth an estimated $5.7 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $3.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Snap-on Incorporated (NYSE:SNA) but similarly valued. We will take a look at Kirkland Lake Gold Ltd. (NYSE:KL), AngloGold Ashanti Limited (NYSE:AU), Caesars Entertainment Corp (NASDAQ:CZR), and Omega Healthcare Investors Inc (NYSE:OHI). This group of stocks’ market valuations match SNA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KL 24 508654 8
AU 17 542302 -2
CZR 46 4006799 0
OHI 18 147489 0
Average 26.25 1301311 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $1301 million. That figure was $558 million in SNA’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand AngloGold Ashanti Limited (NYSE:AU) is the least popular one with only 17 bullish hedge fund positions. Snap-on Incorporated (NYSE:SNA) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately SNA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SNA were disappointed as the stock returned -30.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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