Is Sanderson Farms, Inc. (SAFM) A Good Stock To Buy Right Now?

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 Sanderson Farms, Inc. (NASDAQ:SAFM).

Sanderson Farms, Inc. (NASDAQ:SAFM) was in 21 hedge funds’ portfolios at the end of September. SAFM has actually seen an increase in support from the world’s most elite money managers recently. There were 17 hedge funds in our database with SAFM positions at the end of the previous quarter. At the end of this article we will also compare SAFM to other stocks including Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), Qunar Cayman Islands Ltd (NASDAQ:QUNR), and NOW Inc (NYSE:DNOW) to get a better sense of its popularity.

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.

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Now, let’s take a glance at the latest action encompassing Sanderson Farms, Inc. (NASDAQ:SAFM).

What does the smart money think about Sanderson Farms, Inc. (NASDAQ:SAFM)?

Heading into the fourth quarter of 2016, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. The stock reached its highest popularity level over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons’s Renaissance Technologies has the largest position in Sanderson Farms, Inc. (NASDAQ:SAFM), worth close to $60 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $49 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’s AQR Capital Management and Eric Sprott’s Sprott Asset Management.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Gotham Asset Management, managed by Joel Greenblatt, created the biggest position in Sanderson Farms, Inc. (NASDAQ:SAFM). Gotham Asset Management had $6.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $2.7 million position during the quarter. The other funds with brand new SAFM positions are Ken Griffin’s Citadel Investment Group, Malcolm Fairbairn’s Ascend Capital, and Jamie Mendola’s Pacific Grove Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sanderson Farms, Inc. (NASDAQ:SAFM) but similarly valued. We will take a look at Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), Qunar Cayman Islands Ltd (NASDAQ:QUNR), NOW Inc (NYSE:DNOW), and The New York Times Company (NYSE:NYT). This group of stocks’ market values resemble SAFM’s market value.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $202 million in SAFM’s case. Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is the most popular stock in this table. On the other hand Qunar Cayman Islands Ltd (NASDAQ:QUNR) is the least popular one with only 7 bullish hedge fund positions. Sanderson Farms, Inc. (NASDAQ:SAFM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PLAY might be a better candidate to consider a long position.