At the end of February we announced the arrival of the first US recession since 2009 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 Hormel Foods Corporation (NYSE:HRL).
Hormel Foods Corporation (NYSE:HRL) investors should be aware of an increase in support from the world’s most elite money managers lately. Our calculations also showed that HRL 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.
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 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’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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. 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. With all of this in mind let’s view the recent hedge fund action surrounding Hormel Foods Corporation (NYSE:HRL).
How are hedge funds trading Hormel Foods Corporation (NYSE:HRL)?
At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in HRL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Hormel Foods Corporation (NYSE:HRL), which was worth $137 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $52.8 million worth of shares. Citadel Investment Group, Adage Capital Management, and Balyasny 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 Cognios Capital allocated the biggest weight to Hormel Foods Corporation (NYSE:HRL), around 1.03% of its 13F portfolio. Ellington is also relatively very bullish on the stock, designating 0.49 percent of its 13F equity portfolio to HRL.
Now, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the biggest position in Hormel Foods Corporation (NYSE:HRL). Balyasny Asset Management had $10.4 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $4.3 million position during the quarter. The following funds were also among the new HRL investors: Mike Vranos’s Ellington, Ray Dalio’s Bridgewater Associates, and Greg Eisner’s Engineers Gate Manager.
Let’s go over hedge fund activity in other stocks similar to Hormel Foods Corporation (NYSE:HRL). We will take a look at HP Inc. (NYSE:HPQ), Alcon Inc. (NYSE:ALC), AFLAC Incorporated (NYSE:AFL), and DexCom, Inc. (NASDAQ:DXCM). This group of stocks’ market values are similar to HRL’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $1096 million. That figure was $276 million in HRL’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 25 bullish hedge fund positions. Hormel Foods Corporation (NYSE:HRL) 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately HRL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HRL investors were disappointed as the stock returned 5.2% 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.
Disclosure: None. This article was originally published at Insider Monkey.