Was The Smart Money Right About Archer Daniels Midland Company (ADM)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Archer Daniels Midland Company (NYSE:ADM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Archer Daniels Midland Company (NYSE:ADM) has experienced an increase in enthusiasm from smart money recently. ADM was in 28 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with ADM holdings at the end of the previous quarter. Our calculations also showed that ADM 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).

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s check out the recent hedge fund action encompassing Archer Daniels Midland Company (NYSE:ADM).

How are hedge funds trading Archer Daniels Midland Company (NYSE:ADM)?

At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ADM over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Archer Daniels Midland Company (NYSE:ADM) was held by Diamond Hill Capital, which reported holding $191.8 million worth of stock at the end of September. It was followed by Levin Easterly Partners with a $104.8 million position. Other investors bullish on the company included Markel Gayner Asset Management, Citadel Investment Group, and Soros Fund Management. In terms of the portfolio weights assigned to each position Kehrs Ridge Capital allocated the biggest weight to Archer Daniels Midland Company (NYSE:ADM), around 3.6% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, earmarking 2.94 percent of its 13F equity portfolio to ADM.

Consequently, some big names were breaking ground themselves. Moore Global Investments, managed by Louis Bacon, created the largest position in Archer Daniels Midland Company (NYSE:ADM). Moore Global Investments had $17.6 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $15.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian Scudieri’s Kehrs Ridge Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and David Costen Haley’s HBK Investments.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Archer Daniels Midland Company (NYSE:ADM) but similarly valued. We will take a look at Fortive Corporation (NYSE:FTV), Stanley Black & Decker, Inc. (NYSE:SWK), Pioneer Natural Resources Company (NYSE:PXD), and Microchip Technology Incorporated (NASDAQ:MCHP). This group of stocks’ market valuations are closest to ADM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTV 43 1260211 7
SWK 41 1598834 13
PXD 53 1070714 3
MCHP 46 1428178 14
Average 45.75 1339484 9.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $1339 million. That figure was $712 million in ADM’s case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Stanley Black & Decker, Inc. (NYSE:SWK) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks Archer Daniels Midland Company (NYSE:ADM) is even less popular than SWK. Hedge funds dodged a bullet by taking a bearish stance towards ADM. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately ADM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ADM investors were disappointed as the stock returned -23.6% 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 most of these stocks already outperformed the market so far in 2020.
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.