Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Tyson Foods, Inc. (NYSE:TSN) to find out whether there were any major changes in hedge funds’ views.
Is TSN a good stock to buy now? Tyson Foods, Inc. (NYSE:TSN) was in 36 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 58. TSN investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 37 hedge funds in our database with TSN positions at the end of the second quarter. Our calculations also showed that TSN 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.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Bernard Horn of Polaris Capital 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 let’s go over the recent hedge fund action encompassing Tyson Foods, Inc. (NYSE:TSN).
Do Hedge Funds Think TSN Is A Good Stock To Buy Now?
At third quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TSN over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Tyson Foods, Inc. (NYSE:TSN). AQR Capital Management has a $115.1 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Noam Gottesman of GLG Partners, with a $101.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Peter Simmie’s Bristol Gate Capital Partners, Ken Griffin’s Citadel Investment Group and Bernard Horn’s Polaris Capital Management. In terms of the portfolio weights assigned to each position Bristol Gate Capital Partners allocated the biggest weight to Tyson Foods, Inc. (NYSE:TSN), around 4.45% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, dishing out 2.92 percent of its 13F equity portfolio to TSN.
Because Tyson Foods, Inc. (NYSE:TSN) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain “tier” of money managers who sold off their positions entirely by the end of the third quarter. Interestingly, David Cohen and Harold Levy’s Iridian Asset Management dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising about $106 million in stock, and John Murphy’s Levin Easterly Partners was right behind this move, as the fund dropped about $47.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Tyson Foods, Inc. (NYSE:TSN) but similarly valued. These stocks are Schlumberger Limited. (NYSE:SLB), Corteva, Inc. (NYSE:CTVA), GSX Techedu Inc. (NYSE:GSX), Weyerhaeuser Co. (NYSE:WY), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), TD Ameritrade Holding Corp. (NYSE:AMTD), and AvalonBay Communities Inc (NYSE:AVB). This group of stocks’ market valuations resemble TSN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLB | 53 | 1030051 | 0 |
| CTVA | 36 | 1058371 | -3 |
| GSX | 18 | 387317 | 5 |
| WY | 41 | 476768 | 8 |
| ODFL | 47 | 787838 | 12 |
| AMTD | 37 | 1261757 | -10 |
| AVB | 29 | 1350013 | -5 |
| Average | 37.3 | 907445 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $907 million. That figure was $618 million in TSN’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 18 bullish hedge fund positions. Tyson Foods, Inc. (NYSE:TSN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TSN is 48.3. 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. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately TSN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TSN investors were disappointed as the stock returned 9.9% since the end of September (through 12/18) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
