Were Hedge Funds Right About Altria Group Inc (MO)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. 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 4 years and analyze what the smart money thinks of Altria Group Inc (NYSE:MO) based on that data.

Altria Group Inc (NYSE:MO) was in 54 hedge funds’ portfolios at the end of the fourth quarter of 2019. MO investors should be aware of an increase in enthusiasm from smart money lately. There were 53 hedge funds in our database with MO holdings at the end of the previous quarter. Our calculations also showed that MO 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

Now let’s review the key hedge fund action regarding Altria Group Inc (NYSE:MO).

Hedge fund activity in Altria Group Inc (NYSE:MO)

At Q4’s end, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in MO a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is MO A Good Stock To Buy?

Among these funds, Lone Pine Capital held the most valuable stake in Altria Group Inc (NYSE:MO), which was worth $176.5 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $172.1 million worth of shares. Millennium Management, Suvretta Capital Management, and Orbis Investment 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 Callodine Capital Management allocated the biggest weight to Altria Group Inc (NYSE:MO), around 8.7% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, earmarking 6.07 percent of its 13F equity portfolio to MO.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Lone Pine Capital, founded by Stephen Mandel, assembled the biggest position in Altria Group Inc (NYSE:MO). Lone Pine Capital had $176.5 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also made a $142.8 million investment in the stock during the quarter. The other funds with brand new MO positions are William B. Gray’s Orbis Investment Management, John Armitage’s Egerton Capital Limited, and OZ Management.

Let’s go over hedge fund activity in other stocks similar to Altria Group Inc (NYSE:MO). These stocks are U.S. Bancorp (NYSE:USB), Lowe’s Companies, Inc. (NYSE:LOW), Booking Holdings Inc. (NASDAQ:BKNG), and Fidelity National Information Services Inc. (NYSE:FIS). This group of stocks’ market values match MO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
USB 50 8686368 3
LOW 77 5412801 1
BKNG 74 5578745 -13
FIS 105 8073588 10
Average 76.5 6937876 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 76.5 hedge funds with bullish positions and the average amount invested in these stocks was $6938 million. That figure was $1750 million in MO’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 50 bullish hedge fund positions. Altria Group Inc (NYSE:MO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately MO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MO investors were disappointed as the stock returned -22% 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 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.