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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Mosaic Company (NYSE:MOS).
Is The Mosaic Company (NYSE:MOS) a sound investment today? Prominent investors are buying. The number of long hedge fund bets went up by 10 recently. Our calculations also showed that MOS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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’ 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 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.
Joel Greenblatt of Gotham Asset Management
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 take a gander at the fresh hedge fund action regarding The Mosaic Company (NYSE:MOS).
How have hedgies been trading The Mosaic Company (NYSE:MOS)?
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 53% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MOS over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in The Mosaic Company (NYSE:MOS) was held by Adage Capital Management, which reported holding $211.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $157.5 million position. Other investors bullish on the company included Slate Path Capital, D E Shaw, and East Side Capital (RR Partners). In terms of the portfolio weights assigned to each position Slate Path Capital allocated the biggest weight to The Mosaic Company (NYSE:MOS), around 7.13% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, dishing out 3.23 percent of its 13F equity portfolio to MOS.
Now, key money managers have jumped into The Mosaic Company (NYSE:MOS) headfirst. Renaissance Technologies, founded by Jim Simons, assembled the most outsized position in The Mosaic Company (NYSE:MOS). Renaissance Technologies had $19 million invested in the company at the end of the quarter. Brian J. Higgins’s King Street Capital also initiated a $15.1 million position during the quarter. The following funds were also among the new MOS investors: Sara Nainzadeh’s Centenus Global Management, Andrew Byington’s Appian Way Asset Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Mosaic Company (NYSE:MOS) but similarly valued. These stocks are HollyFrontier Corporation (NYSE:HFC), Invesco Ltd. (NYSE:IVZ), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Bunge Limited (NYSE:BG). This group of stocks’ market valuations are closest to MOS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HFC | 30 | 382980 | -1 |
| IVZ | 24 | 252642 | -2 |
| PPC | 24 | 299579 | -2 |
| BG | 37 | 689916 | 0 |
| Average | 28.75 | 406279 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $406 million. That figure was $695 million in MOS’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Invesco Ltd. (NYSE:IVZ) is the least popular one with only 24 bullish hedge fund positions. The Mosaic Company (NYSE:MOS) 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. 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately MOS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MOS were disappointed as the stock returned -53.9% during the same time period 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 this year.
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.
