Hedge Funds Are Selling Hormel Foods Corporation (HRL)

In this article we will analyze whether Hormel Foods Corporation (NYSE:HRL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Hormel Foods Corporation (NYSE:HRL) a good investment now? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 5 in recent months. Hormel Foods Corporation (NYSE:HRL) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic is 31. Our calculations also showed that HRL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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. With all of this in mind let’s view the key hedge fund action regarding Hormel Foods Corporation (NYSE:HRL).

Do Hedge Funds Think HRL Is A Good Stock To Buy Now?

At the end of March, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HRL over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, AQR Capital Management held the most valuable stake in Hormel Foods Corporation (NYSE:HRL), which was worth $168.8 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $100.9 million worth of shares. Renaissance Technologies, Millennium Management, and Citadel Investment Group 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 AlphaCrest Capital Management allocated the biggest weight to Hormel Foods Corporation (NYSE:HRL), around 0.52% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, designating 0.5 percent of its 13F equity portfolio to HRL.

Since Hormel Foods Corporation (NYSE:HRL) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that decided to sell off their entire stakes by the end of the first quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $7.2 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also dumped its stock, about $1.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hormel Foods Corporation (NYSE:HRL) but similarly valued. These stocks are DTE Energy Company (NYSE:DTE), Carnival Corporation & plc (NYSE:CCL), AvalonBay Communities Inc (NYSE:AVB), Copart, Inc. (NASDAQ:CPRT), Consolidated Edison, Inc. (NYSE:ED), Datadog, Inc. (NASDAQ:DDOG), and Credit Suisse Group AG (NYSE:CS). All of these stocks’ market caps are closest to HRL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $716 million. That figure was $484 million in HRL’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 13 bullish hedge fund positions. Hormel Foods Corporation (NYSE:HRL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HRL is 43.2. 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 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 24% in 2021 through July 9th and surpassed the market again by 6.7 percentage points. Unfortunately HRL wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HRL investors were disappointed as the stock returned 0.3% since the end of March (through 7/9) 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.

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