In this article you are going to find out whether hedge funds think Hormel Foods Corporation (NYSE:HRL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is HRL a good stock to buy? Hormel Foods Corporation (NYSE:HRL) investors should pay attention to an increase in hedge fund interest lately. Hormel Foods Corporation (NYSE:HRL) was in 30 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HRL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind let’s analyze the key hedge fund action regarding Hormel Foods Corporation (NYSE:HRL).
Do Hedge Funds Think HRL Is A Good Stock To Buy Now?
At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HRL over the last 21 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Hormel Foods Corporation (NYSE:HRL), with a stake worth $177.8 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $155.7 million. Two Sigma Advisors, GLG Partners, and D E Shaw 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 Fairpointe Capital allocated the biggest weight to Hormel Foods Corporation (NYSE:HRL), around 2.17% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.43 percent of its 13F equity portfolio to HRL.
As aggregate interest increased, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most valuable position in Hormel Foods Corporation (NYSE:HRL). Balyasny Asset Management had $5.4 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also initiated a $1 million position during the quarter. The following funds were also among the new HRL investors: Peter Muller’s PDT Partners, Michael Gelband’s ExodusPoint Capital, and Joel Greenblatt’s Gotham Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Hormel Foods Corporation (NYSE:HRL) but similarly valued. These stocks are The Kroger Co. (NYSE:KR), American Water Works Company, Inc. (NYSE:AWK), HP Inc. (NYSE:HPQ), Consolidated Edison, Inc. (NYSE:ED), Parker-Hannifin Corporation (NYSE:PH), Liberty Broadband Corp (NASDAQ:LBRDK), and NIO Limited (NYSE:NIO). All of these stocks’ market caps match HRL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KR | 35 | 2470150 | -6 |
| AWK | 31 | 679131 | 1 |
| HPQ | 41 | 1114928 | 6 |
| ED | 18 | 387478 | -13 |
| PH | 51 | 2050679 | 12 |
| LBRDK | 56 | 4166611 | -2 |
| NIO | 35 | 1400815 | 5 |
| Average | 38.1 | 1752827 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $1753 million. That figure was $555 million in HRL’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Consolidated Edison, Inc. (NYSE:ED) is the least popular one with only 18 bullish hedge fund positions. Hormel Foods Corporation (NYSE:HRL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HRL is 53.8. 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. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately HRL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HRL investors were disappointed as the stock returned -1.5% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
