While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Cal-Maine Foods Inc (NASDAQ:CALM).
Cal-Maine Foods Inc (NASDAQ:CALM) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare CALM to other stocks including ProPetro Holding Corp. (NYSE:PUMP), Cubic Corporation (NYSE:CUB), and Norbord Inc. (NYSE:OSB) to get a better sense of its popularity. Our calculations also showed that CALM isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the recent hedge fund action regarding Cal-Maine Foods Inc (NASDAQ:CALM).
What have hedge funds been doing with Cal-Maine Foods Inc (NASDAQ:CALM)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in CALM a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Cal-Maine Foods Inc (NASDAQ:CALM), with a stake worth $72.5 million reported as of the end of March. Trailing Diamond Hill Capital was Renaissance Technologies, which amassed a stake valued at $46.4 million. Royce & Associates, GLG Partners, and Sabrepoint Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Cal-Maine Foods Inc (NASDAQ:CALM) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds that decided to sell off their entire stakes in the second quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management sold off the largest stake of all the hedgies watched by Insider Monkey, valued at an estimated $0.6 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cal-Maine Foods Inc (NASDAQ:CALM) but similarly valued. These stocks are ProPetro Holding Corp. (NYSE:PUMP), Cubic Corporation (NYSE:CUB), Norbord Inc. (NYSE:OSB), and Avanos Medical, Inc. (NYSE:AVNS). This group of stocks’ market valuations match CALM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PUMP | 24 | 206397 | 3 |
| CUB | 19 | 54795 | 4 |
| OSB | 6 | 13327 | -1 |
| AVNS | 11 | 83258 | 0 |
| Average | 15 | 89444 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $182 million in CALM’s case. ProPetro Holding Corp. (NYSE:PUMP) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 6 bullish hedge fund positions. Cal-Maine Foods Inc (NASDAQ:CALM) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CALM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CALM were disappointed as the stock returned -4.2% during the third quarter 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.
