How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding 3M Company (NYSE:MMM).
3M Company (NYSE:MMM) was in 41 hedge funds’ portfolios at the end of March. The all time high for this statistic is 56. MMM has seen a decrease in support from the world’s most elite money managers recently. There were 44 hedge funds in our database with MMM holdings at the end of December. Our calculations also showed that MMM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing 3M Company (NYSE:MMM).
Do Hedge Funds Think MMM Is A Good Stock To Buy Now?
At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MMM over the last 23 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, Fisher Asset Management held the most valuable stake in 3M Company (NYSE:MMM), which was worth $988 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $265.2 million worth of shares. Citadel Investment Group, GQG Partners, and Markel Gayner Asset Management 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 Hourglass Capital allocated the biggest weight to 3M Company (NYSE:MMM), around 1.35% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 1.05 percent of its 13F equity portfolio to MMM.
Due to the fact that 3M Company (NYSE:MMM) has experienced falling interest from the smart money, we can see that there exists a select few hedgies that elected to cut their full holdings heading into Q2. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management sold off the largest position of the 750 funds tracked by Insider Monkey, worth close to $75.6 million in stock. Kenneth Tropin’s fund, Graham Capital Management, also said goodbye to its stock, about $52.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q2.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as 3M Company (NYSE:MMM) but similarly valued. We will take a look at American Tower Corporation (REIT) (NYSE:AMT), The Estee Lauder Companies Inc (NYSE:EL), Intuit Inc. (NASDAQ:INTU), Lockheed Martin Corporation (NYSE:LMT), Square, Inc. (NYSE:SQ), Uber Technologies, Inc. (NYSE:UBER), and Target Corporation (NYSE:TGT). This group of stocks’ market valuations resemble MMM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMT | 58 | 4593727 | -3 |
| EL | 59 | 4103128 | 8 |
| INTU | 68 | 4707761 | 0 |
| LMT | 50 | 2295448 | -3 |
| SQ | 92 | 9202246 | 3 |
| UBER | 130 | 10532866 | -5 |
| TGT | 60 | 4760942 | -18 |
| Average | 73.9 | 5742303 | -2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 73.9 hedge funds with bullish positions and the average amount invested in these stocks was $5742 million. That figure was $1520 million in MMM’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Lockheed Martin Corporation (NYSE:LMT) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks 3M Company (NYSE:MMM) is even less popular than LMT. Our overall hedge fund sentiment score for MMM is 24. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards MMM. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th but managed to beat the market again by 6.1 percentage points. Unfortunately MMM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); MMM investors were disappointed as the stock returned 0.2% since the end of the first quarter (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
