AGCO Corporation (AGCO): Are Hedge Funds Right About This Stock?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like AGCO Corporation (NYSE:AGCO).

Is AGCO Corporation (NYSE:AGCO) an excellent investment today? The smart money is taking a bearish view. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that AGCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AGCO was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 25 hedge funds in our database with AGCO positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie of Maverick Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the fresh hedge fund action encompassing AGCO Corporation (NYSE:AGCO).

Hedge fund activity in AGCO Corporation (NYSE:AGCO)

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the second quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in AGCO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, AQR Capital Management held the most valuable stake in AGCO Corporation (NYSE:AGCO), which was worth $90.9 million at the end of the third quarter. On the second spot was Maverick Capital which amassed $49.7 million worth of shares. Arrowstreet Capital, Impax Asset Management, 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 Maverick Capital allocated the biggest weight to AGCO Corporation (NYSE:AGCO), around 0.73% of its portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 0.32 percent of its 13F equity portfolio to AGCO.

Since AGCO Corporation (NYSE:AGCO) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Javier Velazquez’s Albar Capital dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $6.7 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also dumped its stock, about $5 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as AGCO Corporation (NYSE:AGCO) but similarly valued. These stocks are Kinross Gold Corporation (NYSE:KGC), Toll Brothers Inc (NYSE:TOL), CACI International Inc (NYSE:CACI), and Herbalife Nutrition Ltd. (NYSE:HLF). This group of stocks’ market valuations match AGCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $1024 million. That figure was $243 million in AGCO’s case. Kinross Gold Corporation (NYSE:KGC) is the most popular stock in this table. On the other hand Toll Brothers Inc (NYSE:TOL) is the least popular one with only 22 bullish hedge fund positions. AGCO Corporation (NYSE:AGCO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AGCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AGCO were disappointed as the stock returned 3.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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