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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Sanderson Farms, Inc. (NASDAQ:SAFM).
Is Sanderson Farms, Inc. (NASDAQ:SAFM) a buy right now? Money managers are in an optimistic mood. The number of long hedge fund positions moved up by 12 recently. Our calculations also showed that SAFM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 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 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.
Dmitry Balyasny of Balyasny Asset Management
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 check out the key hedge fund action regarding Sanderson Farms, Inc. (NASDAQ:SAFM).
How are hedge funds trading Sanderson Farms, Inc. (NASDAQ:SAFM)?
At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the third quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in SAFM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the biggest position in Sanderson Farms, Inc. (NASDAQ:SAFM). Renaissance Technologies has a $165.5 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is Citadel Investment Group, led by Ken Griffin, holding a $141.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Israel Englander’s Millennium Management, Steve Cohen’s Point72 Asset Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to Sanderson Farms, Inc. (NASDAQ:SAFM), around 5.52% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, setting aside 3.4 percent of its 13F equity portfolio to SAFM.
Consequently, some big names have jumped into Sanderson Farms, Inc. (NASDAQ:SAFM) headfirst. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Sanderson Farms, Inc. (NASDAQ:SAFM). Point72 Asset Management had $43 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $33.8 million position during the quarter. The other funds with brand new SAFM positions are Dmitry Balyasny’s Balyasny Asset Management, Zach Schreiber’s Point State Capital, and Brian Scudieri’s Kehrs Ridge Capital.
Let’s also examine hedge fund activity in other stocks similar to Sanderson Farms, Inc. (NASDAQ:SAFM). These stocks are Globant SA (NYSE:GLOB), Selective Insurance Group, Inc. (NASDAQ:SIGI), United Therapeutics Corporation (NASDAQ:UTHR), and ICU Medical, Inc. (NASDAQ:ICUI). This group of stocks’ market values are similar to SAFM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GLOB | 18 | 52725 | 1 |
| SIGI | 25 | 111114 | -1 |
| UTHR | 36 | 1137929 | 3 |
| ICUI | 17 | 402123 | 1 |
| Average | 24 | 425973 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $701 million in SAFM’s case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand ICU Medical, Inc. (NASDAQ:ICUI) is the least popular one with only 17 bullish hedge fund positions. Sanderson Farms, Inc. (NASDAQ:SAFM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SAFM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SAFM were disappointed as the stock returned -25.6% 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 many of these stocks already outperformed the market so far this year.
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.
