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 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% 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 Middleby Corporation (NASDAQ:MIDD).
Is The Middleby Corporation (NASDAQ:MIDD) an attractive investment now? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions shrunk by 4 in recent months. Our calculations also showed that MIDD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MIDD was in 23 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with MIDD positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the fresh hedge fund action regarding The Middleby Corporation (NASDAQ:MIDD).
Hedge fund activity in The Middleby Corporation (NASDAQ:MIDD)
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in MIDD a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in The Middleby Corporation (NASDAQ:MIDD) was held by Viking Global, which reported holding $130.4 million worth of stock at the end of September. It was followed by Echo Street Capital Management with a $66.7 million position. Other investors bullish on the company included Bares Capital Management, D E Shaw, and Islet Management. In terms of the portfolio weights assigned to each position Islet Management allocated the biggest weight to The Middleby Corporation (NASDAQ:MIDD), around 2.94% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, earmarking 1.13 percent of its 13F equity portfolio to MIDD.
Seeing as The Middleby Corporation (NASDAQ:MIDD) has experienced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes heading into Q4. Intriguingly, Ricky Sandler’s Eminence Capital dropped the largest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $172.9 million in stock. Principal Global Investors’s fund, Columbus Circle Investors, also sold off its stock, about $37.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Middleby Corporation (NASDAQ:MIDD) but similarly valued. These stocks are Dolby Laboratories, Inc. (NYSE:DLB), HD Supply Holdings Inc (NASDAQ:HDS), Charles River Laboratories International Inc. (NYSE:CRL), and East West Bancorp, Inc. (NASDAQ:EWBC). All of these stocks’ market caps are closest to MIDD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DLB | 27 | 538773 | 0 |
| HDS | 33 | 965472 | 3 |
| CRL | 32 | 875494 | 3 |
| EWBC | 27 | 426545 | -1 |
| Average | 29.75 | 701571 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $702 million. That figure was $348 million in MIDD’s case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand Dolby Laboratories, Inc. (NYSE:DLB) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks The Middleby Corporation (NASDAQ:MIDD) is even less popular than DLB. Hedge funds dodged a bullet by taking a bearish stance towards MIDD. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MIDD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MIDD investors were disappointed as the stock returned -1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
