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Were Hedge Funds Right About Warming Up To Hormel Foods Corporation (HRL)?

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.

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 Hormel Foods Corporation (NYSE:HRL) 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 Hormel Foods Corporation (NYSE:HRL) a buy, sell, or hold? Investors who are in the know are betting on the stock. The number of bullish hedge fund bets improved by 1 lately. Our calculations also showed that HRL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Today there are a large number of tools stock market investors employ to appraise stocks. A couple of the most innovative tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite money managers can trounce their index-focused peers by a very impressive margin (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now we’re going to check out the latest hedge fund action encompassing Hormel Foods Corporation (NYSE:HRL).

What have hedge funds been doing with Hormel Foods Corporation (NYSE:HRL)?

At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in HRL over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is HRL A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in Hormel Foods Corporation (NYSE:HRL), worth close to $121.9 million, accounting for 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is GLG Partners, led by Noam Gottesman, holding a $26.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Cognios Capital allocated the biggest weight to Hormel Foods Corporation (NYSE:HRL), around 0.88% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to HRL.

Now, specific money managers have jumped into Hormel Foods Corporation (NYSE:HRL) headfirst. Renaissance Technologies, established the biggest position in Hormel Foods Corporation (NYSE:HRL). Renaissance Technologies had $26.1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $3.6 million position during the quarter. The other funds with brand new HRL positions are Philippe Laffont’s Coatue Management, Israel Englander’s Millennium Management, and Hoon Kim’s Quantinno Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hormel Foods Corporation (NYSE:HRL) but similarly valued. These stocks are Realty Income Corporation (NYSE:O), STMicroelectronics N.V. (NYSE:STM), Waste Connections, Inc. (NYSE:WCN), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). This group of stocks’ market valuations resemble HRL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
O 26 394173 8
STM 17 146213 4
WCN 37 623995 3
ALXN 48 2927643 0
Average 32 1023006 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1023 million. That figure was $240 million in HRL’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 17 bullish hedge fund positions. Hormel Foods Corporation (NYSE:HRL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on HRL as the stock returned -5.8% during the same time period and outperformed the market by an even larger margin.

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

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