Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Jacobs Engineering Group Inc. (NYSE:J)? The smart money sentiment can provide an answer to this question.
Jacobs Engineering Group Inc. (NYSE:J) has experienced a decrease in activity from the world’s largest hedge funds in recent months. Jacobs Engineering Group Inc. (NYSE:J) was in 24 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that J isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Brad Farber of Atika Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a glance at the new hedge fund action encompassing Jacobs Engineering Group Inc. (NYSE:J).
Do Hedge Funds Think J Is A Good Stock To Buy Now?
At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in J over the last 23 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.
Among these funds, Select Equity Group held the most valuable stake in Jacobs Engineering Group Inc. (NYSE:J), which was worth $650.7 million at the end of the fourth quarter. On the second spot was Empyrean Capital Partners which amassed $136.6 million worth of shares. Samlyn Capital, Fir Tree, and Atika Capital 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 Empyrean Capital Partners allocated the biggest weight to Jacobs Engineering Group Inc. (NYSE:J), around 3.92% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, earmarking 3.01 percent of its 13F equity portfolio to J.
Due to the fact that Jacobs Engineering Group Inc. (NYSE:J) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their full holdings heading into Q2. At the top of the heap, Aaron Cowen’s Suvretta Capital Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $50.7 million in stock, and Sahm Adrangi’s Kerrisdale Capital was right behind this move, as the fund said goodbye to about $6.4 million worth. These moves are interesting, as total hedge fund interest fell by 6 funds heading into Q2.
Let’s also examine hedge fund activity in other stocks similar to Jacobs Engineering Group Inc. (NYSE:J). These stocks are Avantor, Inc. (NYSE:AVTR), QuantumScape Corporation (NYSE:QS), Sun Communities Inc (NYSE:SUI), Genuine Parts Company (NYSE:GPC), The Liberty SiriusXM Group (NASDAQ:LSXMA), Smith & Nephew plc (NYSE:SNN), and Brookfield Property Partners LP (NASDAQ:BPY). This group of stocks’ market values match J’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVTR | 48 | 2064929 | -8 |
| QS | 29 | 534668 | -6 |
| SUI | 35 | 1007911 | 8 |
| GPC | 26 | 357245 | 1 |
| LSXMA | 38 | 1727128 | -4 |
| SNN | 11 | 42029 | -1 |
| BPY | 17 | 205102 | 8 |
| Average | 29.1 | 848430 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $848 million. That figure was $996 million in J’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 11 bullish hedge fund positions. Jacobs Engineering Group Inc. (NYSE:J) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for J is 37.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately J wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); J investors were disappointed as the stock returned 2.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Jacobs Solutions Inc. (NYSE:J)
Follow Jacobs Solutions Inc. (NYSE:J)
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Disclosure: None. This article was originally published at Insider Monkey.
