Do Hedge Funds Love Conagra Brands, Inc. (CAG)?

In this article we will check out the progression of hedge fund sentiment towards Conagra Brands, Inc. (NYSE:CAG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Conagra Brands, Inc. (NYSE:CAG) was in 30 hedge funds’ portfolios at the end of March. CAG has seen an increase in support from the world’s most elite money managers lately. There were 29 hedge funds in our database with CAG positions at the end of the previous quarter. Our calculations also showed that CAG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Barry Rosenstein of JANA Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action regarding Conagra Brands, Inc. (NYSE:CAG).

How are hedge funds trading Conagra Brands, Inc. (NYSE:CAG)?

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CAG over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, JANA Partners was the largest shareholder of Conagra Brands, Inc. (NYSE:CAG), with a stake worth $344.2 million reported as of the end of September. Trailing JANA Partners was Citadel Investment Group, which amassed a stake valued at $65.2 million. GAMCO Investors, Adage Capital 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 JANA Partners allocated the biggest weight to Conagra Brands, Inc. (NYSE:CAG), around 43.89% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 1.08 percent of its 13F equity portfolio to CAG.

As industrywide interest jumped, specific money managers have jumped into Conagra Brands, Inc. (NYSE:CAG) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Conagra Brands, Inc. (NYSE:CAG). Arrowstreet Capital had $7.8 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $5 million position during the quarter. The other funds with brand new CAG positions are Richard Driehaus’s Driehaus Capital, Cliff Asness’s AQR Capital Management, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Conagra Brands, Inc. (NYSE:CAG) but similarly valued. We will take a look at First Republic Bank (NYSE:FRC), Altice USA, Inc. (NYSE:ATUS), Cardinal Health, Inc. (NYSE:CAH), and Campbell Soup Company (NYSE:CPB). This group of stocks’ market values are closest to CAG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $1121 million. That figure was $538 million in CAG’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 28 bullish hedge fund positions. Conagra Brands, Inc. (NYSE:CAG) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on CAG, though not to the same extent, as the stock returned 19.3% during the second quarter and outperformed the market.

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