Is POST Stock A Buy or Sell?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Post Holdings Inc (NYSE:POST)? The smart money sentiment can provide an answer to this question.

Is POST stock a buy? Post Holdings Inc (NYSE:POST) was in 27 hedge funds’ portfolios at the end of December. The all time high for this statistic is 44. POST has seen a decrease in enthusiasm from smart money in recent months. There were 30 hedge funds in our database with POST positions at the end of the third quarter. Our calculations also showed that POST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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).

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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 analyze the key hedge fund action surrounding Post Holdings Inc (NYSE:POST).

Do Hedge Funds Think POST Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in POST over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Route One Investment Company was the largest shareholder of Post Holdings Inc (NYSE:POST), with a stake worth $707.1 million reported as of the end of December. Trailing Route One Investment Company was Iridian Asset Management, which amassed a stake valued at $217.7 million. Diamond Hill Capital, Candlestick Capital Management, and Bridger Management 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 Route One Investment Company allocated the biggest weight to Post Holdings Inc (NYSE:POST), around 19.89% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, setting aside 4.22 percent of its 13F equity portfolio to POST.

Due to the fact that Post Holdings Inc (NYSE:POST) has faced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of fund managers who sold off their entire stakes heading into Q1. Intriguingly, John Murphy’s Levin Easterly Partners dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $32 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $8.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q1.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Post Holdings Inc (NYSE:POST) but similarly valued. These stocks are ITT Inc. (NYSE:ITT), Futu Holdings Limited (NASDAQ:FUTU), Kilroy Realty Corp (NYSE:KRC), Casey’s General Stores, Inc. (NASDAQ:CASY), Ballard Power Systems Inc. (NASDAQ:BLDP), ANGI Homeservices Inc (NASDAQ:ANGI), and Woori Financial Group Inc. (NYSE:WF). All of these stocks’ market caps resemble POST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $1537 million in POST’s case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 1 bullish hedge fund positions. Post Holdings Inc (NYSE:POST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for POST is 63.7. 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 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately POST wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on POST were disappointed as the stock returned 10.1% since the end of December (through 4/19) 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.

Disclosure: None. This article was originally published at Insider Monkey.

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