General Mills, Inc. (GIS): Hedge Funds Taking Some Chips Off The Table

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding General Mills, Inc. (NYSE:GIS) and determine whether hedge funds had an edge regarding this stock.

Is General Mills, Inc. (NYSE:GIS) a cheap investment right now? Money managers were getting less optimistic. The number of bullish hedge fund positions retreated by 2 recently. General Mills, Inc. (NYSE:GIS) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 42. Our calculations also showed that GIS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a peek at the latest hedge fund action regarding General Mills, Inc. (NYSE:GIS).

Hedge fund activity in General Mills, Inc. (NYSE:GIS)

At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GIS over the last 20 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in General Mills, Inc. (NYSE:GIS) was held by Renaissance Technologies, which reported holding $334.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $158.6 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to General Mills, Inc. (NYSE:GIS), around 6.64% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, designating 2.91 percent of its 13F equity portfolio to GIS.

Since General Mills, Inc. (NYSE:GIS) has witnessed falling interest from the smart money, it’s safe to say that there exists a select few fund managers that elected to cut their full holdings in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of the 750 funds watched by Insider Monkey, valued at about $10.5 million in stock, and David Cohen and Harold Levy’s Iridian Asset Management was right behind this move, as the fund sold off about $7.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to General Mills, Inc. (NYSE:GIS). We will take a look at Walgreens Boots Alliance Inc (NASDAQ:WBA), Emerson Electric Co. (NYSE:EMR), eBay Inc (NASDAQ:EBAY), Centene Corporation (NYSE:CNC), FedEx Corporation (NYSE:FDX), L3Harris Technologies, Inc. (NASDAQ:LHX), and Monster Beverage Corp (NASDAQ:MNST). This group of stocks’ market values are similar to GIS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $1922 million. That figure was $913 million in GIS’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Monster Beverage Corp (NASDAQ:MNST) is the least popular one with only 35 bullish hedge fund positions. General Mills, Inc. (NYSE:GIS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GIS is 32.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately GIS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GIS investors were disappointed as the stock returned 4.5% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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