Was The Smart Money Right About Sanderson Farms, Inc. (SAFM)?

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 Sanderson Farms, Inc. (NASDAQ:SAFM) and determine whether hedge funds had an edge regarding this stock.

Is Sanderson Farms, Inc. (NASDAQ:SAFM) a buy, sell, or hold? Hedge funds were in a bearish mood. The number of long hedge fund positions were trimmed by 2 recently. Sanderson Farms, Inc. (NASDAQ:SAFM) was in 31 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 36. Our calculations also showed that SAFM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 33 hedge funds in our database with SAFM positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding Sanderson Farms, Inc. (NASDAQ:SAFM).

Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

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

At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards SAFM over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sanderson Farms, Inc. (NASDAQ:SAFM) was held by Magnetar Capital, which reported holding $146 million worth of stock at the end of September. It was followed by Alpine Associates with a $71.5 million position. Other investors bullish on the company included Renaissance Technologies, Sand Grove Capital Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Sand Grove Capital Partners allocated the biggest weight to Sanderson Farms, Inc. (NASDAQ:SAFM), around 5.84% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, setting aside 2.32 percent of its 13F equity portfolio to SAFM.

Because Sanderson Farms, Inc. (NASDAQ:SAFM) has faced falling interest from hedge fund managers, logic holds that there is a sect of fund managers who were dropping their full holdings last quarter. Intriguingly, Jack Woodruff’s Candlestick Capital Management sold off the largest stake of all the hedgies tracked by Insider Monkey, totaling about $41.4 million in stock, and Gilchrist Berg’s Water Street Capital was right behind this move, as the fund said goodbye to about $11.8 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Sanderson Farms, Inc. (NASDAQ:SAFM). We will take a look at Portland General Electric Company (NYSE:POR), Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI), Shutterstock Inc (NYSE:SSTK), Daqo New Energy Corp (NYSE:DQ), Signet Jewelers Limited (NYSE:SIG), Ballard Power Systems Inc. (NASDAQ:BLDP), and Mimecast Limited (NASDAQ:MIME). This group of stocks’ market valuations are similar to SAFM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POR 15 80234 -6
HASI 15 139078 5
SSTK 19 234636 1
DQ 18 221632 1
SIG 33 1165089 0
BLDP 15 59388 0
MIME 28 369142 4
Average 20.4 324171 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $572 million in SAFM’s case. Signet Jewelers Limited (NYSE:SIG) is the most popular stock in this table. On the other hand Portland General Electric Company (NYSE:POR) is the least popular one with only 15 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 73.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, SAFM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SAFM were disappointed as the stock returned -1.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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