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

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Pilgrim’s Pride Corporation (NASDAQ:PPC) a worthy investment today? Prominent investors are taking an optimistic view. The number of long hedge fund positions improved by 1 in recent months. Our calculations also showed that PPC isn’t among the 30 most popular stocks among hedge funds. PPC was in 17 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with PPC holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

BlueMountain Capital Management's Returns, AUM and Holdings

We’re going to take a look at the recent hedge fund action surrounding Pilgrim’s Pride Corporation (NASDAQ:PPC).

How have hedgies been trading Pilgrim’s Pride Corporation (NASDAQ:PPC)?

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PPC over the last 14 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

PPC_apr2019

The largest stake in Pilgrim’s Pride Corporation (NASDAQ:PPC) was held by AQR Capital Management, which reported holding $31.1 million worth of stock at the end of September. It was followed by Millennium Management with a $26.5 million position. Other investors bullish on the company included Arrowstreet Capital, Gotham Asset Management, and Citadel Investment Group.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Pilgrim’s Pride Corporation (NASDAQ:PPC) headfirst. D E Shaw, managed by D. E. Shaw, assembled the most valuable position in Pilgrim’s Pride Corporation (NASDAQ:PPC). D E Shaw had $4.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new PPC investors: Minhua Zhang’s Weld Capital Management, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Pilgrim’s Pride Corporation (NASDAQ:PPC) but similarly valued. We will take a look at 51job, Inc. (NASDAQ:JOBS), Blackstone Mortgage Trust Inc (NYSE:BXMT), BlackBerry Limited (NYSE:BB), and Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL). This group of stocks’ market values are similar to PPC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JOBS 13 24137 -1
BXMT 16 129325 2
BB 23 581395 5
CBRL 19 196110 7
Average 17.75 232742 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $111 million in PPC’s case. BlackBerry Limited (NYSE:BB) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 13 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on PPC as the stock returned 64.5% and outperformed the market by an even larger margin.

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

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