Was The Smart Money Right About 3M Company (MMM)?

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 fourth 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 3M Company (NYSE:MMM) based on that data.

Is 3M Company (NYSE:MMM) the right pick for your portfolio? The smart money was selling. The number of bullish hedge fund positions were cut by 12 in recent months. 3M Company (NYSE:MMM) was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 56. Our calculations also showed that MMM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 56 hedge funds in our database with MMM positions at the end of the third quarter.

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 124 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.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding 3M Company (NYSE:MMM).

Do Hedge Funds Think MMM Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MMM over the last 22 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is MMM A Good Stock To Buy?

The largest stake in 3M Company (NYSE:MMM) was held by Fisher Asset Management, which reported holding $856.3 million worth of stock at the end of December. It was followed by AQR Capital Management with a $181.9 million position. Other investors bullish on the company included Adage Capital Management, Graham Capital Management, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to 3M Company (NYSE:MMM), around 2.77% of its 13F portfolio. Graham Capital Management is also relatively very bullish on the stock, setting aside 1.92 percent of its 13F equity portfolio to MMM.

Due to the fact that 3M Company (NYSE:MMM) has experienced falling interest from hedge fund managers, we can see that there is a sect of hedge funds that elected to cut their positions entirely by the end of the fourth quarter. Interestingly, Renaissance Technologies said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling about $53.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $33.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 12 funds by the end of the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to 3M Company (NYSE:MMM). We will take a look at American Tower Corporation (NYSE:AMT), The Charles Schwab Corporation (NYSE:SCHW), Lockheed Martin Corporation (NYSE:LMT), Caterpillar Inc. (NYSE:CAT), Square, Inc. (NYSE:SQ), American Express Company (NYSE:AXP), and Zoom Video Communications, Inc. (NASDAQ:ZM). This group of stocks’ market valuations resemble MMM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMT 61 4726391 -1
SCHW 61 4473211 8
LMT 53 2527739 6
CAT 53 4157844 12
SQ 89 8819199 16
AXP 60 21887073 12
ZM 59 6002261 3
Average 62.3 7513388 8

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.3 hedge funds with bullish positions and the average amount invested in these stocks was $7513 million. That figure was $1367 million in MMM’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Lockheed Martin Corporation (NYSE:LMT) is the least popular one with only 53 bullish hedge fund positions. Compared to these stocks 3M Company (NYSE:MMM) is even less popular than LMT. Our overall hedge fund sentiment score for MMM is 16.6. 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. Hedge funds clearly dropped the ball on MMM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on MMM as the stock returned 13.7% since Q4 (through April 30th) and outperformed the market by an even larger margin.

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