Should You Add Snap-on Incorporated (SNA) to Your Portfolio?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility and underperformance. The time period between the end of June 2015 and the end of June 2016 was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have been underperforming the large-cap indices. However, things have dramatically changed over the last 5 months. Small-cap stocks reversed their misfortune and beat the large cap indices by almost 11 percentage points since the end of June. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Snap-on Incorporated (NYSE:SNA).

Snap-on Incorporated (NYSE:SNA) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. SNA was in 26 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with SNA holdings at the end of the previous quarter. At the end of this article we will also compare SNA to other stocks, including Vereit Inc (NYSE:VER), Buckeye Partners, L.P. (NYSE:BPL), and Mosaic Co (NYSE:MOS) 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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How have hedgies been trading Snap-on Incorporated (NYSE:SNA)?

Heading into the fourth quarter of 2016, 27 of the hedge funds tracked by Insider Monkey were bullish on Snap-on Incorporated, down by 4% from one quarter earlier. 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).

When looking at the institutional investors followed by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the number one position in Snap-on Incorporated (NYSE:SNA), worth close to $120.9 million. The second most bullish fund manager is East Side Capital (RR Partners), managed by Steven Richman, which holds a $120.8 million position; 5.8% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism encompass John W. Rogers’ Ariel Investments, and Jeffrey Gates’ Gates Capital Management.

Seeing as Snap-on Incorporated (NYSE:SNA) has witnessed a decline in interest from the smart money, we can see that there lies a certain “tier” of fund managers that slashed their full holdings during the third quarter. At the top of the heap, Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners said goodbye to the largest stake of the 700 funds followed by Insider Monkey, worth an estimated $7.5 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut about $2.5 million worth of stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Snap-on Incorporated (NYSE:SNA) but similarly valued. We will take a look at Vereit Inc (NYSE:VER), Buckeye Partners, L.P. (NYSE:BPL), Mosaic Co (NYSE:MOS), and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT). This group of stocks’ market values are similar to SNA’s market value.

As you can see these stocks had an average of 24 funds with bullish positions and the average amount invested in these stocks was $357 million, compared to $652 million in SNA’s case. J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is the most popular stock in this table. On the other hand Buckeye Partners, L.P. (NYSE:BPL) is the least popular one with only 13 investors reporting long positions. Snap-on Incorporated (NYSE:SNA) 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 J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) might be a better candidate to consider a long position.

Disclosure: None