Should I Buy Sanderson Farms, Inc. (SAFM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Sanderson Farms, Inc. (NASDAQ:SAFM) based on that data and determine whether they were really smart about the stock.

Is Sanderson Farms, Inc. (NASDAQ:SAFM) ready to rally soon? Prominent investors were taking a bullish view. The number of bullish hedge fund positions rose by 5 in recent months. Sanderson Farms, Inc. (NASDAQ:SAFM) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. Our calculations also showed that SAFM 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.

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Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage 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 lithium company which could also benefit from the electric car adoption. 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. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s review the recent hedge fund action surrounding Sanderson Farms, Inc. (NASDAQ:SAFM).

How are hedge funds trading Sanderson Farms, Inc. (NASDAQ:SAFM)?

At second quarter’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in SAFM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Sanderson Farms, Inc. (NASDAQ:SAFM), with a stake worth $59.4 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $43.1 million. Citadel Investment Group, Candlestick Capital Management, and Adage Capital Management 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 Kehrs Ridge Capital allocated the biggest weight to Sanderson Farms, Inc. (NASDAQ:SAFM), around 5.4% of its 13F portfolio. Water Street Capital is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to SAFM.

As industrywide interest jumped, key money managers have jumped into Sanderson Farms, Inc. (NASDAQ:SAFM) headfirst. Water Street Capital, managed by Gilchrist Berg, assembled the largest position in Sanderson Farms, Inc. (NASDAQ:SAFM). Water Street Capital had $10.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $6.4 million investment in the stock during the quarter. The other funds with brand new SAFM positions are Brian Scudieri’s Kehrs Ridge Capital, Minhua Zhang’s Weld Capital Management, and Alexander Mitchell’s Scopus Asset Management.

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 Rapid7 Inc (NASDAQ:RPD), Ping Identity Holding Corp. (NYSE:PING), EPR Properties (NYSE:EPR), Stitch Fix, Inc. (NASDAQ:SFIX), Denali Therapeutics Inc. (NASDAQ:DNLI), Artisan Partners Asset Management Inc (NYSE:APAM), and Tripadvisor Inc (NASDAQ:TRIP). All of these stocks’ market caps are closest to SAFM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RPD 14 64535 -2
PING 15 73422 4
EPR 23 328921 0
SFIX 28 219372 12
DNLI 21 99880 7
APAM 21 262058 1
TRIP 28 641358 -2
Average 21.4 241364 2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $205 million in SAFM’s case. Stitch Fix, Inc. (NASDAQ:SFIX) is the most popular stock in this table. On the other hand Rapid7 Inc (NASDAQ:RPD) is the least popular one with only 14 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 56.9. 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. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately SAFM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SAFM were disappointed as the stock returned 2.1% in Q3 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.