We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether The Middleby Corporation (NASDAQ:MIDD) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
The Middleby Corporation (NASDAQ:MIDD) was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2019. MIDD investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. There were 25 hedge funds in our database with MIDD holdings at the end of the previous quarter. Our calculations also showed that MIDD 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
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 let’s review the latest hedge fund action regarding The Middleby Corporation (NASDAQ:MIDD).
What does smart money think about The Middleby Corporation (NASDAQ:MIDD)?
Heading into the first quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the third quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in MIDD a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of The Middleby Corporation (NASDAQ:MIDD), with a stake worth $203.3 million reported as of the end of September. Trailing Viking Global was Echo Street Capital Management, which amassed a stake valued at $63 million. D E Shaw, Bares Capital Management, and Arrowstreet 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 Bares Capital Management allocated the biggest weight to The Middleby Corporation (NASDAQ:MIDD), around 1.02% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, setting aside 0.97 percent of its 13F equity portfolio to MIDD.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in The Middleby Corporation (NASDAQ:MIDD). Paloma Partners had $2.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.5 million investment in the stock during the quarter. The other funds with brand new MIDD positions are Ray Dalio’s Bridgewater Associates, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Philippe Laffont’s Coatue Management.
Let’s now take a look at hedge fund activity in other stocks similar to The Middleby Corporation (NASDAQ:MIDD). These stocks are Sabre Corporation (NASDAQ:SABR), Israel Chemicals Ltd. (NYSE:ICL), Lumentum Holdings Inc (NASDAQ:LITE), and Cullen/Frost Bankers, Inc. (NYSE:CFR). This group of stocks’ market values are similar to MIDD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SABR | 24 | 204823 | -5 |
| ICL | 6 | 14809 | 1 |
| LITE | 37 | 490022 | 7 |
| CFR | 18 | 58785 | -4 |
| Average | 21.25 | 192110 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $456 million in MIDD’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. The Middleby Corporation (NASDAQ:MIDD) 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 MIDD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MIDD were disappointed as the stock returned -49.2% 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.
