Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to McCormick & Company, Incorporated (NYSE:MKC) changed recently.
Is McCormick & Company, Incorporated (NYSE:MKC) undervalued? Money managers are reducing their bets on the stock. The number of bullish hedge fund positions fell by 3 lately. Our calculations also showed that MKC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
To the average investor there are numerous gauges shareholders have at their disposal to appraise their stock investments. Two of the less known gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outperform their index-focused peers by a significant amount (see the details here).
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s analyze the new hedge fund action surrounding McCormick & Company, Incorporated (NYSE:MKC).
How have hedgies been trading McCormick & Company, Incorporated (NYSE:MKC)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MKC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in McCormick & Company, Incorporated (NYSE:MKC), which was worth $59.8 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $23.2 million worth of shares. D E Shaw, Axel Capital 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 Axel Capital Management allocated the biggest weight to McCormick & Company, Incorporated (NYSE:MKC), around 6.09% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, designating 0.91 percent of its 13F equity portfolio to MKC.
Since McCormick & Company, Incorporated (NYSE:MKC) has faced a decline in interest from the smart money, logic holds that there exists a select few fund managers that slashed their full holdings last quarter. It’s worth mentioning that George Soros’s Soros Fund Management said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $27.1 million in stock. Brad Dunkley and Blair Levinsky’s fund, Waratah Capital Advisors, also dropped its stock, about $3.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as McCormick & Company, Incorporated (NYSE:MKC) but similarly valued. These stocks are The Kroger Co. (NYSE:KR), Weyerhaeuser Co. (NYSE:WY), Synopsys, Inc. (NASDAQ:SNPS), and Spotify Technology S.A. (NYSE:SPOT). This group of stocks’ market values are closest to MKC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KR | 25 | 632469 | -3 |
| WY | 28 | 451903 | 0 |
| SNPS | 40 | 1362195 | -2 |
| SPOT | 37 | 1470342 | -5 |
| Average | 32.5 | 979227 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $979 million. That figure was $138 million in MKC’s case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand The Kroger Co. (NYSE:KR) is the least popular one with only 25 bullish hedge fund positions. McCormick & Company, Incorporated (NYSE:MKC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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. Unfortunately MKC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MKC investors were disappointed as the stock returned 23.7% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
