We can judge whether Post Holdings Inc (NYSE:POST) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the new hedge fund action encompassing Post Holdings Inc (NYSE:POST).
Hedge fund activity in Post Holdings Inc (NYSE:POST)
At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in POST over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Route One Investment Company held the most valuable stake in Post Holdings Inc (NYSE:POST), which was worth $647.7 million at the end of the first quarter. On the second spot was Diamond Hill Capital which amassed $127.1 million worth of shares. Moreover, Renaissance Technologies, Citadel Investment Group, and GAMCO Investors were also bullish on Post Holdings Inc (NYSE:POST), allocating a large percentage of their portfolios to this stock.
Because Post Holdings Inc (NYSE:POST) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that elected to cut their positions entirely heading into Q3. Intriguingly, David Cohen and Harold Levy’s Iridian Asset Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $183.6 million in stock. John A. Levin’s fund, Levin Capital Strategies, also dumped its stock, about $103.4 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Post Holdings Inc (NYSE:POST) but similarly valued. These stocks are Momo Inc (NASDAQ:MOMO), Guidewire Software Inc (NYSE:GWRE), CPFL Energia S.A. (NYSE:CPL), and Fair Isaac Corporation (NYSE:FICO). This group of stocks’ market caps resemble POST’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $533 million. That figure was $1334 million in POST’s case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 2 bullish hedge fund positions. Post Holdings Inc (NYSE:POST) 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 POST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on POST were disappointed as the stock returned -2.6% 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.