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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Tractor Supply Company (NASDAQ:TSCO).
Tractor Supply Company (NASDAQ:TSCO) was in 44 hedge funds’ portfolios at the end of December. TSCO investors should be aware of an increase in hedge fund sentiment lately. There were 41 hedge funds in our database with TSCO holdings at the end of the previous quarter. Our calculations also showed that TSCO 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.
According to most market participants, hedge funds are assumed to be slow, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the bigwigs of this group, around 850 funds. These money managers have their hands on bulk of the smart money’s total capital, and by observing their finest picks, Insider Monkey has spotted several investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR Capital 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. With all of this in mind we’re going to take a peek at the fresh hedge fund action regarding Tractor Supply Company (NASDAQ:TSCO).
How are hedge funds trading Tractor Supply Company (NASDAQ:TSCO)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the third quarter of 2019. By comparison, 41 hedge funds held shares or bullish call options in TSCO a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Tractor Supply Company (NASDAQ:TSCO) was held by AQR Capital Management, which reported holding $142.6 million worth of stock at the end of September. It was followed by Samlyn Capital with a $79 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and Park Presidio Capital. In terms of the portfolio weights assigned to each position Blackcrane Capital allocated the biggest weight to Tractor Supply Company (NASDAQ:TSCO), around 6.58% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, earmarking 5.05 percent of its 13F equity portfolio to TSCO.
As one would reasonably expect, key money managers were leading the bulls’ herd. Blackcrane Capital, managed by Daniel Kim, established the biggest position in Tractor Supply Company (NASDAQ:TSCO). Blackcrane Capital had $8.2 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $7.5 million position during the quarter. The following funds were also among the new TSCO investors: David Harding’s Winton Capital Management, Steve Cohen’s Point72 Asset Management, and Gavin Baker’s Atreides Management.
Let’s now take a look at hedge fund activity in other stocks similar to Tractor Supply Company (NASDAQ:TSCO). We will take a look at StoneCo Ltd. (NASDAQ:STNE), Elanco Animal Health Incorporated (NYSE:ELAN), LKQ Corporation (NASDAQ:LKQ), and Avery Dennison Corporation (NYSE:AVY). This group of stocks’ market values resemble TSCO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STNE | 29 | 1474730 | 1 |
| ELAN | 23 | 620585 | -4 |
| LKQ | 52 | 1559414 | 9 |
| AVY | 22 | 105570 | -3 |
| Average | 31.5 | 940075 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $940 million. That figure was $697 million in TSCO’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 22 bullish hedge fund positions. Tractor Supply Company (NASDAQ:TSCO) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TSCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TSCO were disappointed as the stock returned -27.7% 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.
Disclosure: None. This article was originally published at Insider Monkey.
