Looking for stocks with high upside potential? 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 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus 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 The Boston Beer Company Inc (NYSE:SAM).
The Boston Beer Company Inc (NYSE:SAM) was in 23 hedge funds’ portfolios at the end of June. SAM investors should be aware of an increase in enthusiasm from smart money of late. There were 22 hedge funds in our database with SAM holdings at the end of the previous quarter. Our calculations also showed that SAM isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the key hedge fund action encompassing The Boston Beer Company Inc (NYSE:SAM).
How are hedge funds trading The Boston Beer Company Inc (NYSE:SAM)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SAM over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of The Boston Beer Company Inc (NYSE:SAM), with a stake worth $142.8 million reported as of the end of March. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $122.2 million. Fisher Asset Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the largest position in The Boston Beer Company Inc (NYSE:SAM). Point72 Asset Management had $18.3 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $8.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Principal Global Investors’s Columbus Circle Investors, and Philippe Laffont’s Coatue Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Boston Beer Company Inc (NYSE:SAM) but similarly valued. These stocks are Tetra Tech, Inc. (NASDAQ:TTEK), Littelfuse, Inc. (NASDAQ:LFUS), Assured Guaranty Ltd. (NYSE:AGO), and Marriott Vacations Worldwide Corporation (NYSE:VAC). All of these stocks’ market caps match SAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTEK | 22 | 101584 | -1 |
| LFUS | 15 | 268202 | 2 |
| AGO | 36 | 613916 | 2 |
| VAC | 27 | 442811 | 1 |
| Average | 25 | 356628 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $591 million in SAM’s case. Assured Guaranty Ltd. (NYSE:AGO) is the most popular stock in this table. On the other hand Littelfuse, Inc. (NASDAQ:LFUS) is the least popular one with only 15 bullish hedge fund positions. The Boston Beer Company Inc (NYSE:SAM) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SAM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SAM investors were disappointed as the stock returned -3.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
