Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Jabil Inc. (NYSE:JBL) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Hedge fund interest in Jabil Inc. (NYSE:JBL) 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 JBL to other stocks including Pegasystems Inc. (NASDAQ:PEGA), Generac Holdings Inc. (NYSE:GNRC), and IAA, Inc. (NYSE:IAA) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action encompassing Jabil Inc. (NYSE:JBL).
Hedge fund activity in Jabil Inc. (NYSE:JBL)
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in JBL a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Jabil Inc. (NYSE:JBL), with a stake worth $234.6 million reported as of the end of September. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $110.6 million. Renaissance Technologies, GLG Partners, and Adage Capital Management 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 Shellback Capital allocated the biggest weight to Jabil Inc. (NYSE:JBL), around 1.65% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, designating 0.81 percent of its 13F equity portfolio to JBL.
Due to the fact that Jabil Inc. (NYSE:JBL) has faced falling interest from the smart money, we can see that there were a few money managers who were dropping their positions entirely heading into Q4. Interestingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors cut the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $1.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Jabil Inc. (NYSE:JBL) but similarly valued. These stocks are Pegasystems Inc. (NASDAQ:PEGA), Generac Holdings Inc. (NYSE:GNRC), IAA, Inc. (NYSE:IAA), and Berry Global Group Inc (NYSE:BERY). This group of stocks’ market valuations resemble JBL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEGA | 25 | 1051106 | -1 |
| GNRC | 32 | 369028 | -1 |
| IAA | 37 | 1058182 | 5 |
| BERY | 47 | 1623514 | 4 |
| Average | 35.25 | 1025458 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $1025 million. That figure was $642 million in JBL’s case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Pegasystems Inc. (NASDAQ:PEGA) is the least popular one with only 25 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately JBL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JBL investors were disappointed as the stock returned -47.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
