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Were Hedge Funds Right About Ditching Pilgrim’s Pride Corporation (PPC)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Pilgrim’s Pride Corporation (NASDAQ:PPC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Pilgrim’s Pride Corporation (NASDAQ:PPC) undervalued? Prominent investors were taking a pessimistic view. The number of bullish hedge fund positions were cut by 6 lately. Our calculations also showed that PPC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to analyze the key hedge fund action regarding Pilgrim’s Pride Corporation (NASDAQ:PPC).

How are hedge funds trading Pilgrim’s Pride Corporation (NASDAQ:PPC)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PPC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PPC A Good Stock To Buy?

The largest stake in Pilgrim’s Pride Corporation (NASDAQ:PPC) was held by AQR Capital Management, which reported holding $60.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $23 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to Pilgrim’s Pride Corporation (NASDAQ:PPC), around 1.07% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.15 percent of its 13F equity portfolio to PPC.

Since Pilgrim’s Pride Corporation (NASDAQ:PPC) has experienced a decline in interest from the smart money, it’s safe to say that there were a few funds that slashed their positions entirely by the end of the first quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $14.9 million in stock, and Zach Schreiber’s Point State Capital was right behind this move, as the fund dumped about $7.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Pilgrim’s Pride Corporation (NASDAQ:PPC). These stocks are Woori Financial Group Inc. (NYSE:WF), Quanta Services Inc (NYSE:PWR), Etsy Inc (NASDAQ:ETSY), and XPO Logistics Inc (NYSE:XPO). This group of stocks’ market caps match PPC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WF 3 2382 0
PWR 28 1509183 -16
ETSY 38 712742 -8
XPO 36 1719666 4
Average 26.25 985993 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $986 million. That figure was $122 million in PPC’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 3 bullish hedge fund positions. Pilgrim’s Pride Corporation (NASDAQ:PPC) 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately PPC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PPC investors were disappointed as the stock returned -13.7% since Q1 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.

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