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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards McCormick & Company, Incorporated (NYSE:MKC).
McCormick & Company, Incorporated (NYSE:MKC) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. MKC shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 30 hedge funds in our database with MKC holdings at the end of the previous quarter. Our calculations also showed that MKC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are dozens of indicators stock traders can use to size up stocks. A pair of the most under-the-radar indicators are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite investment managers can outclass their index-focused peers by a very impressive margin (see the details here).
Lee Ainslie of Maverick Capital
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. Keeping this in mind we’re going to take a look at the new hedge fund action regarding McCormick & Company, Incorporated (NYSE:MKC).
How are hedge funds trading McCormick & Company, Incorporated (NYSE:MKC)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in MKC a year ago. So, let’s review 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 McCormick & Company, Incorporated (NYSE:MKC), which was worth $64.2 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $24 million worth of shares. GLG Partners, Maverick Capital, 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 Cognios Capital allocated the biggest weight to McCormick & Company, Incorporated (NYSE:MKC), around 0.89% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to MKC.
Since McCormick & Company, Incorporated (NYSE:MKC) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of fund managers that elected to cut their entire stakes in the third quarter. At the top of the heap, Anna Nikolayevsky’s Axel Capital Management cut the biggest stake of the 750 funds watched by Insider Monkey, worth an estimated $8.6 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund sold off about $5.6 million worth. These moves are important to note, as total hedge fund interest fell by 6 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to McCormick & Company, Incorporated (NYSE:MKC). These stocks are Northern Trust Corporation (NASDAQ:NTRS), Weyerhaeuser Co. (NYSE:WY), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and M&T Bank Corporation (NYSE:MTB). This group of stocks’ market valuations resemble MKC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTRS | 35 | 485910 | 12 |
| WY | 30 | 323789 | 0 |
| IDXX | 37 | 540337 | 4 |
| MTB | 32 | 1357139 | 0 |
| Average | 33.5 | 676794 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $156 million in MKC’s case. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the most popular stock in this table. On the other hand Weyerhaeuser Co. (NYSE:WY) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks McCormick & Company, Incorporated (NYSE:MKC) is even less popular than WY. 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 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on MKC, though not to the same extent, as the stock returned -13.6% during the same time period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
