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Here’s What Hedge Funds Think About Deere & Company (DE)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and optimism towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the first quarter and hedging or reducing many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Deere & Company (NYSE:DE).

Deere & Company (NYSE:DE) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that DE isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.

Tom Gayner

Let’s take a gander at the new hedge fund action regarding Deere & Company (NYSE:DE).

What does the smart money think about Deere & Company (NYSE:DE)?

Heading into the second quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -34% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards DE over the last 15 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

DE_jun2019

More specifically, Generation Investment Management was the largest shareholder of Deere & Company (NYSE:DE), with a stake worth $764.5 million reported as of the end of March. Trailing Generation Investment Management was Melvin Capital Management, which amassed a stake valued at $178.1 million. Markel Gayner Asset Management, Firefly Value Partners, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Deere & Company (NYSE:DE) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few funds who were dropping their entire stakes in the third quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $114.7 million in call options, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund cut about $39.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 16 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Deere & Company (NYSE:DE) but similarly valued. We will take a look at Vodafone Group Plc (NASDAQ:VOD), Norfolk Southern Corp. (NYSE:NSC), Occidental Petroleum Corporation (NYSE:OXY), and Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG). All of these stocks’ market caps resemble DE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VOD 18 438299 0
NSC 47 1869998 0
OXY 35 880306 3
SMFG 10 408347 -1
Average 27.5 899238 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $899 million. That figure was $1413 million in DE’s case. Norfolk Southern Corp. (NYSE:NSC) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. Deere & Company (NYSE:DE) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DE were disappointed as the stock returned -11.4% during the same 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 13 of these stocks already outperformed the market so far in Q2.

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

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