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 Brown-Forman Corporation (NYSE:BF)? The smart money sentiment can provide an answer to this question.
Is Brown-Forman Corporation (NYSE:BF) a good investment now? Hedge funds are getting less optimistic. The number of long hedge fund positions were trimmed by 3 in recent months. At the end of this article we will also compare BF to other stocks including Canadian Pacific Railway Limited (USA) (NYSE:CP), Hormel Foods Corporation (NYSE:HRL), and Omnicom Group Inc. (NYSE:OMC) to get a better sense of its popularity.
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How have hedgies been trading Brown-Forman Corporation (NYSE:BF)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 13% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Tom Russo’s Gardner Russo & Gardner has the most valuable position in Brown-Forman Corporation (NYSE:BF), worth close to $235.3 million, corresponding to 2% of its total 13F portfolio. On Gardner Russo & Gardner’s heels is Chilton Investment Company, managed by Richard Chilton, which holds a $78.7 million position; 3.1% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Mario Gabelli’s GAMCO Investors, Tom Russo’s Gardner Russo & Gardner and Tom Gayner’s Markel Gayner Asset Management.
Judging by the fact that Brown-Forman Corporation (NYSE:BF) has witnessed a decline in interest from the smart money, it’s safe to say that there was a specific group of hedgies that decided to sell off their entire stakes by the end of the third quarter. It’s worth mentioning that Jim Simons’ Renaissance Technologies cut the largest investment of the 700 funds tracked by Insider Monkey, totaling an estimated $35.3 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also dumped its stock, about $11 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Brown-Forman Corporation (NYSE:BF) but similarly valued. We will take a look at Canadian Pacific Railway Limited (USA) (NYSE:CP), Hormel Foods Corporation (NYSE:HRL), Omnicom Group Inc. (NYSE:OMC), and L Brands Inc (NYSE:LB). This group of stocks’ market valuations are similar to BF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CP | 32 | 2233116 | 1 |
| HRL | 27 | 706735 | -2 |
| OMC | 21 | 732697 | -3 |
| LB | 32 | 1319885 | 3 |
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1.25 billion. That figure was $615 million in BF’s case. Canadian Pacific Railway Limited (USA) (NYSE:CP) is the most popular stock in this table. On the other hand Omnicom Group Inc. (NYSE:OMC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Brown-Forman Corporation (NYSE:BF) is even less popular than OMC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
