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Should You Avoid The Boston Beer Company Inc (SAM)?

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Boston Beer Company Inc (NYSE:SAM).

Is The Boston Beer Company Inc (NYSE:SAM) a buy here? Money managers are getting less bullish. The number of bullish hedge fund bets dropped by 4 lately. Our calculations also showed that SAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action encompassing The Boston Beer Company Inc (NYSE:SAM).

What have hedge funds been doing with The Boston Beer Company Inc (NYSE:SAM)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in SAM a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of The Boston Beer Company Inc (NYSE:SAM), with a stake worth $185.4 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $90.5 million. Fisher Asset Management, Balyasny Asset Management, and Millennium 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 Moore Global Investments allocated the biggest weight to The Boston Beer Company Inc (NYSE:SAM), around 0.65% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to SAM.

Since The Boston Beer Company Inc (NYSE:SAM) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that decided to sell off their positions entirely in the third quarter. Interestingly, David Harding’s Winton Capital Management sold off the largest investment of the 750 funds tracked by Insider Monkey, valued at about $22.5 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $20 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to The Boston Beer Company Inc (NYSE:SAM). We will take a look at The Brink’s Company (NYSE:BCO), PS Business Parks Inc (NYSE:PSB), Helen of Troy Limited (NASDAQ:HELE), and MorphoSys AG (NASDAQ:MOR). This group of stocks’ market values are closest to SAM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCO 24 453999 3
PSB 15 54684 -4
HELE 17 208287 2
MOR 6 18693 2
Average 15.5 183916 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $577 million in SAM’s case. The Brink’s Company (NYSE:BCO) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks The Boston Beer Company Inc (NYSE:SAM) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on SAM as the stock returned -9% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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