Is Cal-Maine Foods Inc (CALM) Worthy of Your Portfolio?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Cal-Maine Foods Inc (NASDAQ:CALM).

Cal-Maine Foods Inc (NASDAQ:CALM) has seen a decrease in enthusiasm from smart money last quarter. There were 13 hedge funds in our database with CALM holdings at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Tessera Technologies, Inc. (NASDAQ:TSRA), SemGroup Corp (NYSE:SEMG), and Travelport Worldwide Ltd (NYSE:TVPT) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

bluebay/Shutterstock.com

Now, let’s take a peek at the new action encompassing Cal-Maine Foods Inc (NASDAQ:CALM).

What does the smart money think about Cal-Maine Foods Inc (NASDAQ:CALM)?

Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, down by 41% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in CALM at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the largest position in Cal-Maine Foods Inc (NASDAQ:CALM). Royce & Associates has a $21.9 million position in the stock, comprising 0.1% of its 13F portfolio. On Royce & Associates’s heels is Melvin Capital Management, led by Gabriel Plotkin, which holds a $21.2 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Philippe Laffont’s Coatue Management, D E Shaw, one of the biggest hedge funds in the world, and Eric Sprott’s Sprott Asset Management. We should note that Sprott Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dropped their entire stakes in the stock during the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest position of the 700 funds studied by Insider Monkey, worth an estimated $9.2 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dropped about $4.4 million worth of shares.

Let’s also examine 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 Tessera Technologies, Inc. (NASDAQ:TSRA), SemGroup Corp (NYSE:SEMG), Travelport Worldwide Ltd (NYSE:TVPT), and Trustmark Corp (NASDAQ:TRMK). This group of stocks’ market values resemble CALM’s market value.

As you can see these stocks had an average of 21 investors with bullish positions and the average amount invested in these stocks was $293 million. That figure was $92 million in CALM’s case. Tessera Technologies, Inc. (NASDAQ:TSRA) is the most popular stock in this table. On the other hand Trustmark Corp (NASDAQ:TRMK) is the least popular one with only seven funds holding shares. Cal-Maine Foods Inc (NASDAQ:CALM) 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. In this regard Tessera Technologies, Inc. (NASDAQ:TSRA) might be a better candidate to consider taking a long position in.

Disclosure: none