Were Hedge Funds Right About Deere & Company (DE)?

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 Deere & Company (NYSE:DE) 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.

Deere & Company (NYSE:DE) has experienced an increase in support from the world’s most elite money managers lately. DE was in 50 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 41 hedge funds in our database with DE holdings at the end of the previous quarter. Our calculations also showed that DE 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).

To most stock holders, hedge funds are perceived as underperforming, old investment tools of the past. While there are over 8000 funds trading today, Our researchers hone in on the bigwigs of this club, around 850 funds. These investment experts handle the majority of the hedge fund industry’s total capital, and by keeping track of their unrivaled picks, Insider Monkey has come up with many investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 analyze the fresh hedge fund action regarding Deere & Company (NYSE:DE).

What does smart money think about Deere & Company (NYSE:DE)?

Heading into the first quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. By comparison, 47 hedge funds held shares or bullish call options in DE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DE A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Deere & Company (NYSE:DE), with a stake worth $305.2 million reported as of the end of September. Trailing Citadel Investment Group was Markel Gayner Asset Management, which amassed a stake valued at $174.3 million. Balyasny Asset Management, Generation Investment Management, and Two Sigma Advisors 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 Firefly Value Partners allocated the biggest weight to Deere & Company (NYSE:DE), around 7.83% of its 13F portfolio. Alight Capital is also relatively very bullish on the stock, earmarking 5.59 percent of its 13F equity portfolio to DE.

Consequently, specific money managers were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, established the most outsized position in Deere & Company (NYSE:DE). Carlson Capital had $34.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $11.8 million investment in the stock during the quarter. The following funds were also among the new DE investors: Gregg Moskowitz’s Interval Partners, Jonathan Barrett and Paul Segal’s Luminus Management, and Louis Bacon’s Moore Global Investments.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Deere & Company (NYSE:DE) but similarly valued. We will take a look at The Sherwin-Williams Company (NYSE:SHW), Biogen Inc. (NASDAQ:BIIB), Advanced Micro Devices, Inc. (NASDAQ:AMD), and ServiceNow Inc (NYSE:NOW). All of these stocks’ market caps are closest to DE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHW 55 1847137 4
BIIB 61 5162729 8
AMD 53 1462695 -6
NOW 75 5035036 -17
Average 61 3376899 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 61 hedge funds with bullish positions and the average amount invested in these stocks was $3377 million. That figure was $1403 million in DE’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Advanced Micro Devices, Inc. (NASDAQ:AMD) is the least popular one with only 53 bullish hedge fund positions. Compared to these stocks Deere & Company (NYSE:DE) is even less popular than AMD. Hedge funds dodged a bullet by taking a bearish stance towards DE. 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 DE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); DE investors were disappointed as the stock returned -19.8% 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.