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 Simply Good Foods Company (NASDAQ:SMPL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
The Simply Good Foods Company (NASDAQ:SMPL) has seen an increase in hedge fund sentiment recently. Our calculations also showed that SMPL 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.
Noam Gottesman of GLG Partners
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 go over the fresh hedge fund action regarding The Simply Good Foods Company (NASDAQ:SMPL).
What does smart money think about The Simply Good Foods Company (NASDAQ:SMPL)?
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 55% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in SMPL over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in The Simply Good Foods Company (NASDAQ:SMPL), which was worth $60.3 million at the end of the third quarter. On the second spot was Woodson Capital Management which amassed $37.1 million worth of shares. Millennium Management, Point72 Asset Management, and GLG Partners 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 Woodson Capital Management allocated the biggest weight to The Simply Good Foods Company (NASDAQ:SMPL), around 5.63% of its 13F portfolio. Hidden Lake Asset Management is also relatively very bullish on the stock, earmarking 4.05 percent of its 13F equity portfolio to SMPL.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in The Simply Good Foods Company (NASDAQ:SMPL). Balyasny Asset Management had $11.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $9.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Zachary Miller’s Parian Global Management, Joseph Samuels’s Islet Management, and Ben Gambill’s Tiger Eye Capital.
Let’s also examine hedge fund activity in other stocks similar to The Simply Good Foods Company (NASDAQ:SMPL). These stocks are Proto Labs Inc (NYSE:PRLB), SITE Centers Corp. (NYSE:SITC), Trinity Industries, Inc. (NYSE:TRN), and The Hain Celestial Group, Inc. (NASDAQ:HAIN). All of these stocks’ market caps are closest to SMPL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRLB | 10 | 33102 | 0 |
| SITC | 22 | 112447 | 8 |
| TRN | 27 | 860820 | 1 |
| HAIN | 17 | 708372 | -3 |
| Average | 19 | 428685 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $429 million. That figure was $242 million in SMPL’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks The Simply Good Foods Company (NASDAQ:SMPL) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately SMPL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SMPL were disappointed as the stock returned -45.9% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.
