Archer Daniels Midland Company (NYSE:ADM) is almost 3% higher in morning trading today after the analysts at BMO Capital Markets upgraded the stock to ‘Outperform’ from ‘Market Perform’ and bumped up their price target to $48.00 from the previous $40.44. The analysts think Archer Daniels Midland Company (NYSE:ADM) will have a strong second half as its fundamentals improve. The stock itself is pretty cheap, with a forward P/E of under 15 and a dividend yield of almost 3%. Investors hope that the BMO Capital Market’s upgrade will presage more upgrades from other investment houses in the quarters ahead. Having said this, let’s take a closer look at the hedge fund sentiment surrounding Archer Daniels Midland Company. At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by three over the quarter. At the end of this article we will also compare ADM to other stocks, including United Continental Holdings Inc (NYSE:UAL), DISH Network Corp. (NASDAQ:DISH), and Southern Copper Corp (NYSE:SCCO) to get a better sense of its popularity.
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It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a foolproof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong sometimes, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.
According to Insider Monkey’s hedge fund database, David E. Shaw’s D. E. Shaw has the largest position in Archer Daniels Midland Company (NYSE:ADM), worth close to $222.6 million, comprising 0.4% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $177.8 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass John Overdeck and David Siegel’s Two Sigma Advisors, Tom Gayner’s Markel Gayner Asset Management and David Harding’s Winton Capital Management.
On the next page, we are going to take a look at some funds that dumped shares of Archer Daniels Midland heading into the second quarter.
Judging by the fact that Archer Daniels Midland Company (NYSE:ADM) has experienced a bearish sentiment from hedge fund managers, logic holds that there was a specific group of hedgies that elected to cut their full holdings heading into Q2. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 700 funds followed by Insider Monkey, comprising an estimated $17.8 million in stock. Glenn Russell Dubin’s fund, Highbridge Capital Management, also said goodbye to its stock, about $16.2 million worth of stock.
Let’s now review hedge fund activity in other stocks similar to Archer Daniels Midland Company (NYSE:ADM). These stocks are United Continental Holdings Inc (NYSE:UAL), DISH Network Corp. (NASDAQ:DISH), Southern Copper Corp (NYSE:SCCO), and HP Inc. (NYSE:HPQ). This group of stocks’ market caps match ADM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UAL | 61 | 3375647 | -12 |
| DISH | 51 | 2513021 | -1 |
| SCCO | 8 | 37717 | -1 |
| HPQ | 40 | 866570 | 0 |
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1698 million. That figure was $675 million in ADM’s case. United Continental Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand Southern Copper Corp (NYSE:SCCO) is the least popular one with only 8 bullish hedge fund positions. Archer Daniels Midland Company (NYSE:ADM) 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. In this regard UAL might be a better candidate to consider a long position.
Disclosure: None
