Should You Buy General Mills, Inc. (GIS)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of General Mills, Inc. (NYSE:GIS) based on that data.

Hedge fund interest in General Mills, Inc. (NYSE:GIS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GIS to other stocks including Amphenol Corporation (NYSE:APH), TE Connectivity Ltd. (NYSE:TEL), and CRH PLC (NYSE:CRH) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action encompassing General Mills, Inc. (NYSE:GIS).

Hedge fund activity in General Mills, Inc. (NYSE:GIS)

At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in GIS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the biggest position in General Mills, Inc. (NYSE:GIS), worth close to $250.5 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Iridian Asset Management, led by David Cohen and Harold Levy, holding a $184.6 million position; the fund has 3% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Panayotis Takis Sparaggis’s Alkeon Capital Management, D. E. Shaw’s D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Iridian Asset Management allocated the biggest weight to General Mills, Inc. (NYSE:GIS), around 3.02% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, earmarking 1.86 percent of its 13F equity portfolio to GIS.

Because General Mills, Inc. (NYSE:GIS) has experienced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Bruce Kovner’s Caxton Associates LP sold off the biggest position of all the hedgies tracked by Insider Monkey, totaling an estimated $5 million in stock, and Joseph A. Jolson’s Harvest Capital Strategies was right behind this move, as the fund dumped about $4.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as General Mills, Inc. (NYSE:GIS) but similarly valued. These stocks are Amphenol Corporation (NYSE:APH), TE Connectivity Ltd. (NYSE:TEL), CRH PLC (NYSE:CRH), and Ingersoll-Rand Plc (NYSE:IR). All of these stocks’ market caps are closest to GIS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1038 million. That figure was $907 million in GIS’s case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 5 bullish hedge fund positions. General Mills, Inc. (NYSE:GIS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on GIS as the stock returned -10.2% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.