Were Hedge Funds Right About McCormick & Company (MKC)?

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 McCormick & Company, Incorporated (NYSE:MKC) 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.

Is McCormick & Company, Incorporated (NYSE:MKC) a safe investment right now? Prominent investors are taking a pessimistic view. The number of long hedge fund positions retreated by 6 lately. Our calculations also showed that MKC 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).


Lee Ainslie of Maverick Capital

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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 we’re going to review the latest hedge fund action encompassing McCormick & Company, Incorporated (NYSE:MKC).

Hedge fund activity in McCormick & Company, Incorporated (NYSE:MKC)

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MKC over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in McCormick & Company, Incorporated (NYSE:MKC), which was worth $64.2 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $24 million worth of shares. GLG Partners, Maverick Capital, and Citadel Investment Group 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 Cognios Capital allocated the biggest weight to McCormick & Company, Incorporated (NYSE:MKC), around 0.89% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to MKC.

Due to the fact that McCormick & Company, Incorporated (NYSE:MKC) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Anna Nikolayevsky’s Axel Capital Management sold off the largest position of all the hedgies monitored by Insider Monkey, comprising close to $8.6 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund sold off about $5.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to McCormick & Company, Incorporated (NYSE:MKC). These stocks are Northern Trust Corporation (NASDAQ:NTRS), Weyerhaeuser Co. (NYSE:WY), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and M&T Bank Corporation (NYSE:MTB). This group of stocks’ market caps are similar to MKC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTRS 35 485910 12
WY 30 323789 0
IDXX 37 540337 4
MTB 32 1357139 0
Average 33.5 676794 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $156 million in MKC’s case. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the most popular stock in this table. On the other hand Weyerhaeuser Co. (NYSE:WY) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks McCormick & Company, Incorporated (NYSE:MKC) is even less popular than WY. 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 managed to beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on MKC, though not to the same extent, as the stock returned -8.6% during the same time period and outperformed the market as well.
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.