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Is Altria Group Inc (MO) Going to Burn These Hedge Funds?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Altria Group Inc (NYSE:MO) was in 41 hedge funds’ portfolios at the end of September. MO has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 35 hedge funds in our database with MO holdings at the end of the previous quarter. Our calculations also showed that MO 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 18 percentage points since May 2014 through December 3, 2018 (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.

CITADEL INVESTMENT GROUP

We’re going to view the new hedge fund action encompassing Altria Group Inc (NYSE:MO).

What have hedge funds been doing with Altria Group Inc (NYSE:MO)?

At Q3’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in MO over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MO Positions

More specifically, Gardner Russo & Gardner was the largest shareholder of Altria Group Inc (NYSE:MO), with a stake worth $328.6 million reported as of the end of September. Trailing Gardner Russo & Gardner was Two Sigma Advisors, which amassed a stake valued at $228.1 million. Citadel Investment Group, Adage Capital Management, and Polar Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, some big names have been driving this bullishness. Soros Fund Management, managed by George Soros, assembled the largest position in Altria Group Inc (NYSE:MO). Soros Fund Management had $10.6 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also made a $6 million investment in the stock during the quarter. The other funds with brand new MO positions are Lee Ainslie’s Maverick Capital, Glenn Russell Dubin’s Highbridge Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Altria Group Inc (NYSE:MO) but similarly valued. These stocks are Novo Nordisk A/S (NYSE:NVO), United Technologies Corporation (NYSE:UTX), Sanofi (NYSE:SNY), and The Toronto-Dominion Bank (NYSE:TD). This group of stocks’ market caps are closest to MO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVO 17 1845947 -1
UTX 59 7281525 7
SNY 24 821542 1
TD 20 1423010 3
Average 30 2843006 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $2.84 billion. That figure was $1.33 billion in MO’s case. United Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 17 bullish hedge fund positions. Altria Group Inc (NYSE:MO) 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. In this regard UTX might be a better candidate to consider a long position.

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

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