While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers 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 Kellogg Company (NYSE:K).
Is K stock a buy? The best stock pickers were getting more bullish. The number of long hedge fund positions rose by 2 recently. Kellogg Company (NYSE:K) was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 39. Our calculations also showed that K isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 35 hedge funds in our database with K positions at the end of the third quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Richard S. Pzena of Pzena Investment Management
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 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 we’re going to take a gander at the latest hedge fund action regarding Kellogg Company (NYSE:K).
Do Hedge Funds Think K Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in K a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Kellogg Company (NYSE:K) was held by Renaissance Technologies, which reported holding $160.2 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $127.6 million position. Other investors bullish on the company included Millennium Management, Pzena Investment Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Kellogg Company (NYSE:K), around 2.04% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, earmarking 1.16 percent of its 13F equity portfolio to K.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. TwinBeech Capital, managed by Jinghua Yan, established the most outsized position in Kellogg Company (NYSE:K). TwinBeech Capital had $3.2 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also initiated a $1.5 million position during the quarter. The other funds with brand new K positions are Benjamin A. Smith’s Laurion Capital Management, Qing Li’s Sciencast Management, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Kellogg Company (NYSE:K) but similarly valued. We will take a look at Telefonica S.A. (NYSE:TEF), Magna International Inc. (NYSE:MGA), Altice USA, Inc. (NYSE:ATUS), CBRE Group, Inc. (NYSE:CBRE), West Pharmaceutical Services Inc. (NYSE:WST), United Microelectronics Corp (NYSE:UMC), and Zebra Technologies Corporation (NASDAQ:ZBRA). This group of stocks’ market values are similar to K’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEF | 5 | 9555 | 0 |
| MGA | 38 | 662388 | 17 |
| ATUS | 56 | 4475588 | -6 |
| CBRE | 31 | 2119045 | 7 |
| WST | 34 | 455821 | -7 |
| UMC | 12 | 190662 | 1 |
| ZBRA | 41 | 910955 | -3 |
| Average | 31 | 1260573 | 1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1261 million. That figure was $567 million in K’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for K is 66.8. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately K wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on K were disappointed as the stock returned 2.8% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
