Is McCormick & Company, Incorporated (NYSE:MKC) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
McCormick & Company, Incorporated (NYSE:MKC) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios 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 BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Pembina Pipeline Corp (NYSE:PBA), and Western Digital Corporation (NASDAQ:WDC) to gather more data points.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s check out the recent hedge fund action encompassing McCormick & Company, Incorporated (NYSE:MKC).
How are hedge funds trading McCormick & Company, Incorporated (NYSE:MKC)?
Heading into the fourth quarter of 2018, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, no change from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in MKC heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in McCormick & Company, Incorporated (NYSE:MKC), which was worth $33.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $33.2 million worth of shares. Moreover, Adage Capital Management, PEAK6 Capital Management, and Maverick Capital were also bullish on McCormick & Company, Incorporated (NYSE:MKC), allocating a large percentage of their portfolios to this stock.
Since McCormick & Company, Incorporated (NYSE:MKC) has experienced falling interest from the smart money, logic holds that there were a few money managers that slashed their positions entirely in the third quarter. At the top of the heap, Jim Simons’s Renaissance Technologies said goodbye to the largest investment of the 700 funds followed by Insider Monkey, totaling about $34.6 million in stock, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors was right behind this move, as the fund dropped about $23.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to McCormick & Company, Incorporated (NYSE:MKC). These stocks are BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Pembina Pipeline Corp (NYSE:PBA), Western Digital Corporation (NASDAQ:WDC), and Korea Electric Power Corporation (NYSE:KEP). All of these stocks’ market caps are closest to MKC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BMRN | 40 | 2247870 | -1 |
| PBA | 17 | 156625 | 4 |
| WDC | 33 | 1201913 | -10 |
| KEP | 4 | 33627 | -4 |
| Average | 23.5 | 910009 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $910 million. That figure was $153 million in MKC’s case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 4 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. In this regard BMRN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
