Do Hedge Funds Love Archer Daniels Midland Company (ADM)?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Hedge fund interest in Archer Daniels Midland Company (NYSE:ADM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ADM to other stocks, including Cardinal Health, Inc. (NYSE:CAH), Southwest Airlines Co. (NYSE:LUV), and AFLAC Incorporated (NYSE:AFL) to get a better sense of its popularity.

To most traders, hedge funds are viewed as slow, outdated financial tools of the past. While there are greater than an 8000 funds in operation at the moment, We look at the masters of this group, approximately 700 funds. These investment experts command the majority of the smart money’s total capital, and by monitoring their inimitable investments, Insider Monkey has figured out numerous investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, let’s go over the key action encompassing Archer Daniels Midland Company (NYSE:ADM).

What have hedge funds been doing with Archer Daniels Midland Company (NYSE:ADM)?

Heading into Q4, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Archer Daniels Midland Company (NYSE:ADM). According to its latest quarterly report, the fund has a $334.4 million position in the stock, comprising 0.7% of its 13F portfolio. Coming in second is D E Shaw, led by D. E. Shaw, holding a $145.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain David Harding’s Winton Capital Management, Tom Gayner’s Markel Gayner Asset Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Due to the fact that Archer Daniels Midland Company (NYSE:ADM) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Joel Greenblatt’s Gotham Asset Management dumped the biggest position of all the hedgies tracked by Insider Monkey, valued at about $16.9 million in stock. Malcolm Fairbairn’s fund, Ascend Capital, also dropped its holding, about $8.6 million worth of shares. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Archer Daniels Midland Company (NYSE:ADM). We will take a look at Cardinal Health, Inc. (NYSE:CAH), Southwest Airlines Co. (NYSE:LUV), AFLAC Incorporated (NYSE:AFL), and Nokia Corporation (ADR) (NYSE:NOK). This group of stocks’ market caps are similar to ADM’s market cap.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1.14 billion. That figure was $826 million in ADM’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table, whereas Nokia Corporation (ADR) (NYSE:NOK) is the least popular one with only 24 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 LUV might be a better candidate to consider a long position.