The majority of 13F filings for the latest reporting period have been processed by the Insider Monkey team, giving us access to a treasure trove of data on the collective activity of the best money managers in the world. We’ll be producing dozens of reports in the coming days on all sorts of trends taking place among the smart money we track, including their industry-specific investment habits. In this article, we want to start by looking at five stocks that had the confidence of the smart money in the second quarter, but that have been sinking of late. These stocks are Monsanto Company (NYSE:MON), JD.Com Inc (ADR) (NASDAQ:JD), Kinder Morgan (NYSE:KMI), CSX Corporation (NYSE:CSX), and Mosaic Co (NYSE:MOS). Let’s take a look at the action on these stocks and whether they could make for good buy-low candidates.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 118% over the last 35 months, which is more than 60 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Let’s start with Monsanto Company (NYSE:MON), in which fund ownership among those we track increased by 10 to 64 during the second quarter, while the aggregate value of their investments climbed by just under $500 million to $3.54 billion on June 30. The increase in holdings is especially notably given that Monsanto had already begun to sink in the second quarter, dipping by more than 5%. That slide has continued into the third quarter, with Monsanto shedding another 3% of its value. Some of the bullish investors of Monsanto Company (NYSE:MON) include Ray Dalio, who added 85,500 shares to his holding in the second quarter, with Monsanto being one of his top positions. Larry Robbins’ Glenview Capital added over 1.38 million shares to its own position, lifting it above the 11.07 million-share mark.
Next up is JD.Com Inc (ADR) (NASDAQ:JD), which has suffered of late under the crushing force of the Chinese stock market collapse. 75 hedge funds we track held $11.81 billion of the company’s shares on June 30, up from 68 and $8.23 billion respectively three months earlier. After a strong second quarter in which shares gained over 20%, they have since given back all of those gains and more, losing over 17% in the third quarter. Tiger Cub Chase Coleman, a strong supporter of Chinese stocks of late, has been particularly ardent when it comes to JD.Com Inc (ADR) (NASDAQ:JD), adding a gargantuan 49.25 million shares to his position in the second quarter, a position that was already his top pick entering the quarter. Julian Robertson, the Tiger himself, was also a supporter of JD.Com during the quarter, buying 2.71 million shares.
While hedge fund ownership in Kinder Morgan (NYSE:KMI) fell by three funds to 63 by June 30, the holdings of the funds with positions took a giant leap in value, to $2.42 billion from $1.59 billion, despite shares sliding by nearly 10% during the quarter, so funds were bullishly adding shares on their weakness. The moves have yet to pay off, as Kinder Morgan (NYSE:KMI) is down even further so far in the third quarter, by more than 11%. The stock did get a boost on Friday, as it was added to Goldman Sachs‘ ‘Conviction Buy’ list, with the firm holding a $48 price target on the stock, which is currently trading at less than $34. It’s not only funds that have buying up shares of Kinder Morgan of late; company insiders have also been gobbling up shares. Israel Englander’s Millennium Management was one of the funds we track that was bullish on the stock in the second quarter, buying 584,758 shares.
Let’s check out CSX Corporation (NYSE:CSX) now, which is down by over 9% in the third quarter and by more than 20% since early May. Despite the second quarter dip in share price, the value of holdings in the stock among the funds we track leapt by 58% to $1.42 billion. The share price drop also comes despite a record earnings performance for the company in the second quarter, which seemed to vindicate hedge funds for their bullishness (they were also bullish in the first quarter). Nonetheless, the stock has some work to do to reward its backers. Stephen Mandel’s Lone Pine Capital and Dimitry Balyasny’s Balyasny Asset Management were among the funds that were bullish on CSX Corporation (NYSE:CSX) in the second quarter. The former initiated a $68.18 million position, while the latter bumped its holding up by 69% to 2.03 million shares.
Lastly we come to Mosaic Co (NYSE:MOS), which counted Adage Capital Partners among its backers in the second quarter, as the Phill Gross and Robert Atchinson-managed fund added 1.9 million shares to its holding, lifting it to 3.98 million shares. Overall, hedge fund ownership increased to 47 from 40 during the second quarter, and aggregate holdings increased in value to $931 million from $538 million during a quarter in which shares rose only marginally in value. They have declined by 7.5% in the third quarter. Another agricultural inputs company, which counts Monsanto as one of its competitors, Mosaic Co (NYSE:MOS) has a P/E of just 12.8 and a Forward P/E of 11.3, while paying a quarterly dividend that offers a yield of 2.54%.
Disclosure: None
