After DA Davidson initiated coverage of Cal-Maine Foods Inc (NASDAQ:CALM) with a “Buy” rating and a price target of $65 per share in a research note on Friday, the stock spiked as high as $56.42 per share to eventually close at $54.80 per share or 1.88% higher than its Thursday closing price of $53.79 per share. The price target set by DA Davidson represents an 18.61% upside to the stock. From the start of the year, the stock has climbed 40.40%, while over the last one-year period, the stock has had even more momentum, growing by 47.69%. The company, which produces and distributes shell eggs, also received an upgrade from Stephens & Co. on May 18, with that firm upgrading the stock to an ‘Overweight’ rating from an ‘Equal Weight’ rating . The firm’s price target on Cal-Maine Foods Inc is also $65 per share. On May 11, Sidoti boosted its price target on the stock to $67 per share from $51 per share.
Despite these bullish outlooks there were fewer hedge funds among those tracked by Insider Monkey which had long positions in Cal-Maine Foods Inc by the end of the first quarter. At the close of the first three months of the year, a total of 24 of the hedge funds we track held long positions in this stock, down 4% from one quarter earlier. It should be noted, nonetheless, that those who were long in the stock boosted the value of their collective holdings to $224.47 million from $205.44 million at the end of the fourth quarter of 2014, a change of 9.27%, which is significant considering the stock was flat during the period.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t normally distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 144% over the ensuing 32 months, outperforming the S&P 500 Index by nearly 85 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Insider Monkey tracks insider purchases and sales of shares as well to infer whether top management are betting for or potentially against their own company’s stock. In the case of Cal-Maine Foods Inc (NASDAQ:CALM), Director James Poole bought 1,000 shares of the company on April 9. Chief Financial Officer Timothy Dawson, however, sold 6,000 shares of the company in two transactions towards the end of April. Overall, insider sentiment in the stock is slightly positive because of the significant weight we attach to insider purchases.
Keeping this in mind, let’s take a peek at the recent hedge fund action surrounding Cal-Maine Foods Inc (NASDAQ:CALM).