Is SAFM A Good Stock To Buy?

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 Sanderson Farms, Inc. (NASDAQ:SAFM).

Is SAFM a good stock to buy now? Sanderson Farms, Inc. (NASDAQ:SAFM) has experienced a decrease in hedge fund interest recently. Sanderson Farms, Inc. (NASDAQ:SAFM) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 36. Our calculations also showed that SAFM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

To the average investor there are plenty of tools shareholders have at their disposal to evaluate their stock investments. Two of the less utilized tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite fund managers can outperform the broader indices by a significant margin (see the details here).

Eric Sprott Sprott Asset Management

Eric Sprott of Sprott Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to analyze the latest hedge fund action surrounding Sanderson Farms, Inc. (NASDAQ:SAFM).

Do Hedge Funds Think SAFM Is A Good Stock To Buy Now?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in SAFM over the last 21 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.

The largest stake in Sanderson Farms, Inc. (NASDAQ:SAFM) was held by Renaissance Technologies, which reported holding $42.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $18 million position. Other investors bullish on the company included Water Street Capital, Sprott Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position Water Street Capital allocated the biggest weight to Sanderson Farms, Inc. (NASDAQ:SAFM), around 1.31% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to SAFM.

Judging by the fact that Sanderson Farms, Inc. (NASDAQ:SAFM) has faced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedgies that slashed their entire stakes in the third quarter. Intriguingly, Jack Woodruff’s Candlestick Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $20.3 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also said goodbye to its stock, about $11.7 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sanderson Farms, Inc. (NASDAQ:SAFM) but similarly valued. We will take a look at Acadia Healthcare Company Inc (NASDAQ:ACHC), Wyndham Destinations, Inc. (NYSE:WYND), Element Solutions Inc. (NYSE:ESI), AllianceBernstein Holding LP (NYSE:AB), New Jersey Resources Corp (NYSE:NJR), STAAR Surgical Company (NASDAQ:STAA), and WD-40 Company (NASDAQ:WDFC). This group of stocks’ market valuations resemble SAFM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACHC 24 449899 1
WYND 29 474732 -5
ESI 35 415350 -2
AB 8 33255 1
NJR 12 32097 -2
STAA 13 827132 -7
WDFC 17 163003 2
Average 19.7 342210 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $105 million in SAFM’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 8 bullish hedge fund positions. Sanderson Farms, Inc. (NASDAQ:SAFM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAFM is 41.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on SAFM as the stock returned 17.7% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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