Do Hedge Funds Love Tractor Supply Company (TSCO)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Tractor Supply Company (NASDAQ:TSCO).

Is Tractor Supply Company (NASDAQ:TSCO) undervalued? Investors who are in the know are taking a bearish view. The number of bullish hedge fund bets retreated by 7 lately. Our calculations also showed that TSCO 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). TSCO was in 37 hedge funds’ portfolios at the end of March. There were 44 hedge funds in our database with TSCO positions at the end of the previous quarter.

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 51 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.

Cliff Asness of AQR Capital Management

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. Now we’re going to take a glance at the key hedge fund action regarding Tractor Supply Company (NASDAQ:TSCO).

What have hedge funds been doing with Tractor Supply Company (NASDAQ:TSCO)?

At the end of the first quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TSCO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Tractor Supply Company (NASDAQ:TSCO). AQR Capital Management has a $74.4 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $72.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish encompass Lee Hicks and Jan Koerner’s Park Presidio Capital, Brandon Haley’s Holocene Advisors and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Park Presidio Capital allocated the biggest weight to Tractor Supply Company (NASDAQ:TSCO), around 8.86% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, dishing out 3.92 percent of its 13F equity portfolio to TSCO.

Due to the fact that Tractor Supply Company (NASDAQ:TSCO) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth about $79 million in stock. James Parsons’s fund, Junto Capital Management, also sold off its stock, about $9.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Tractor Supply Company (NASDAQ:TSCO). We will take a look at Teva Pharmaceutical Industries Limited (NYSE:TEVA), Freeport-McMoRan Inc. (NYSE:FCX), Genuine Parts Company (NYSE:GPC), and Hasbro, Inc. (NASDAQ:HAS). This group of stocks’ market valuations are closest to TSCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $563 million. That figure was $510 million in TSCO’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Genuine Parts Company (NYSE:GPC) is the least popular one with only 22 bullish hedge fund positions. Tractor Supply Company (NASDAQ:TSCO) is not the most popular stock in this group but hedge fund interest is still above 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 still beat the market by 13.2 percentage points. Hedge funds were also right about betting on TSCO as the stock returned 44.8% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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