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Is Hormel Foods Corporation (HRL) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of 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 Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the new hedge fund action regarding Hormel Foods Corporation (NYSE:HRL).

Hedge fund activity in Hormel Foods Corporation (NYSE:HRL)

Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. On the other hand, there were a total of 12 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.

More specifically, AQR Capital Management was the largest shareholder of Hormel Foods Corporation (NYSE:HRL), with a stake worth $83.2 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $30 million. Citadel Investment Group, Adage Capital Management, and Marshall Wace 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 0.95% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, earmarking 0.69 percent of its 13F equity portfolio to HRL.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the biggest position in Hormel Foods Corporation (NYSE:HRL). Citadel Investment Group had $17.4 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $7.9 million position during the quarter. The other funds with brand new HRL positions are Benjamin A. Smith’s Laurion Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks similar to Hormel Foods Corporation (NYSE:HRL). We will take a look at Entergy Corporation (NYSE:ETR), Chipotle Mexican Grill, Inc. (NYSE:CMG), Parker-Hannifin Corporation (NYSE:PH), and Carnival Corporation & Plc (NYSE:CCL). This group of stocks’ market values resemble HRL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETR 25 1677907 -5
CMG 38 4057541 1
PH 25 803965 -1
CCL 29 589089 -7
Average 29.25 1782126 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1782 million. That figure was $190 million in HRL’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand Entergy Corporation (NYSE:ETR) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Hormel Foods Corporation (NYSE:HRL) is even less popular than ETR. Hedge funds dodged a bullet by taking a bearish stance towards HRL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HRL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HRL investors were disappointed as the stock returned 2.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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