Jacobs Engineering Group Inc. (J): Hedge Funds Are Buying Again

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Jacobs Engineering Group Inc. (NYSE:J) and determine whether hedge funds skillfully traded this stock.

Jacobs Engineering Group Inc. (NYSE:J) investors should be aware of an increase in enthusiasm from smart money of late. Jacobs Engineering Group Inc. (NYSE:J) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. Our calculations also showed that J isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 S&P 500 ETFs by 58 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.

Jeffrey Tannenbaum of Fir Tree

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to review the fresh hedge fund action encompassing Jacobs Engineering Group Inc. (NYSE:J).

How have hedgies been trading Jacobs Engineering Group Inc. (NYSE:J)?

At Q2’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in J a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in Jacobs Engineering Group Inc. (NYSE:J), which was worth $566.6 million at the end of the third quarter. On the second spot was Suvretta Capital Management which amassed $103.2 million worth of shares. Empyrean Capital Partners, Samlyn Capital, and Fir Tree 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 Empyrean Capital Partners allocated the biggest weight to Jacobs Engineering Group Inc. (NYSE:J), around 5.19% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, setting aside 5.1 percent of its 13F equity portfolio to J.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Fir Tree, managed by Jeffrey Tannenbaum, assembled the most valuable position in Jacobs Engineering Group Inc. (NYSE:J). Fir Tree had $37.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $6.7 million position during the quarter. The other funds with new positions in the stock are John Zaro’s Bourgeon Capital, Renaissance Technologies, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks similar to Jacobs Engineering Group Inc. (NYSE:J). We will take a look at UDR, Inc. (NYSE:UDR), CenturyLink, Inc. (NYSE:CTL), E*TRADE Financial Corporation (NASDAQ:ETFC), Wabtec Corporation (NYSE:WAB), Logitech International SA (NASDAQ:LOGI), Nordson Corporation (NASDAQ:NDSN), and DraftKings Inc. (NASDAQ:DKNG). This group of stocks’ market values are closest to J’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UDR 29 389036 10
CTL 30 788387 -4
ETFC 36 1370357 -1
WAB 39 1528246 -2
LOGI 13 277342 -2
NDSN 21 67604 -1
DKNG 53 693614 18
Average 31.6 730655 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $731 million. That figure was $1047 million in J’s case. DraftKings Inc. (NASDAQ:DKNG) is the most popular stock in this table. On the other hand Logitech International SA (NASDAQ:LOGI) is the least popular one with only 13 bullish hedge fund positions. Jacobs Engineering Group Inc. (NYSE:J) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for J is 60.2. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on J as the stock returned 11.1% during Q3 (through September 14th) 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.