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Should I Avoid Tyson Foods, Inc. (TSN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tyson Foods, Inc. (NYSE:TSN) and determine whether hedge funds had an edge regarding this stock.

Is Tyson Foods, Inc. (NYSE:TSN) a bargain? The smart money was taking a bearish view. The number of bullish hedge fund positions were cut by 4 recently. Tyson Foods, Inc. (NYSE:TSN) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 58. Our calculations also showed that TSN 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 take a glance at the latest hedge fund action encompassing Tyson Foods, Inc. (NYSE:TSN).

How have hedgies been trading Tyson Foods, Inc. (NYSE:TSN)?

At second quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TSN over the last 20 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Tyson Foods, Inc. (NYSE:TSN), which was worth $174.7 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $106 million worth of shares. Citadel Investment Group, Polaris Capital Management, and Bristol Gate Capital Partners 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 Bristol Gate Capital Partners allocated the biggest weight to Tyson Foods, Inc. (NYSE:TSN), around 4.49% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 3.34 percent of its 13F equity portfolio to TSN.

Judging by the fact that Tyson Foods, Inc. (NYSE:TSN) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies who sold off their entire stakes heading into Q3. Interestingly, Jack Woodruff’s Candlestick Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $33.9 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $21.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Tyson Foods, Inc. (NYSE:TSN). These stocks are Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Align Technology, Inc. (NASDAQ:ALGN), Welltower Inc. (NYSE:WELL), Sun Life Financial Inc. (NYSE:SLF), Stanley Black & Decker, Inc. (NYSE:SWK), and Skyworks Solutions Inc (NASDAQ:SWKS). This group of stocks’ market caps are similar to TSN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TLK 4 166226 -3
CRWD 78 3277716 13
ALGN 41 1960739 2
WELL 27 655260 2
SLF 14 85306 -2
SWK 33 807322 -3
SWKS 49 993689 20
Average 35.1 1135180 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.1 hedge funds with bullish positions and the average amount invested in these stocks was $1135 million. That figure was $649 million in TSN’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Tyson Foods, Inc. (NYSE:TSN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TSN is 42.4. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately TSN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TSN were disappointed as the stock returned 5.9% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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