This Metric Says You Are Smart to Buy Agrium Inc. (USA) (AGU)

Agrium Inc. (USA) (NYSE:AGU) has seen an increase in enthusiasm from smart money recently.

If you’d ask most traders, hedge funds are perceived as worthless, outdated financial vehicles of years past. While there are over 8000 funds with their doors open at present, we at Insider Monkey hone in on the upper echelon of this group, close to 450 funds. It is estimated that this group controls most of the smart money’s total capital, and by watching their best stock picks, we have discovered a few investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Equally as important, positive insider trading sentiment is a second way to break down the marketplace. Just as you’d expect, there are a variety of incentives for a bullish insider to drop shares of his or her company, but just one, very simple reason why they would initiate a purchase. Various empirical studies have demonstrated the useful potential of this method if investors know where to look (learn more here).

With these “truths” under our belt, it’s important to take a look at the recent action encompassing Agrium Inc. (USA) (NYSE:AGU).

How have hedgies been trading Agrium Inc. (USA) (NYSE:AGU)?

Heading into Q2, a total of 28 of the hedge funds we track held long positions in this stock, a change of 12% from the first quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully.

When looking at the hedgies we track, Barry Rosenstein’s JANA Partners had the biggest position in Agrium Inc. (USA) (NYSE:AGU), worth close to $1.092 billion, comprising 22.7% of its total 13F portfolio. On JANA Partners’s heels is Third Point, managed by Dan Loeb, which held a $97.5 million position; 1.8% of its 13F portfolio is allocated to the company. Remaining hedge funds with similar optimism include D. E. Shaw’s D E Shaw, Daniel Bubis’s Tetrem Capital Management and Richard Chilton’s Chilton Investment Company.

As aggregate interest increased, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, established the most valuable call position in Agrium Inc. (USA) (NYSE:AGU). Moore Global Investments had 14.6 million invested in the company at the end of the quarter. Steven Cohen’s SAC Capital Advisors also made a $14.6 million investment in the stock during the quarter. The other funds with brand new AGU positions are Daniel S. Och’s OZ Management, Louis Bacon’s Moore Global Investments, and Curtis Schenker and Craig Effron’s Scoggin.

What have insiders been doing with Agrium Inc. (USA) (NYSE:AGU)?

Bullish insider trading is best served when the company in question has experienced transactions within the past half-year. Over the latest half-year time frame, Agrium Inc. (USA) (NYSE:AGU) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Agrium Inc. (USA) (NYSE:AGU). These stocks are Syngenta AG (ADR) (NYSE:SYT), Potash Corp./Saskatchewan (USA) (NYSE:POT), Mosaic Co (NYSE:MOS), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks are in the agricultural chemicals industry and their market caps are closest to AGU’s market cap.

With the returns exhibited by our studies, retail investors should always monitor hedge fund and insider trading sentiment, and Agrium Inc. (USA) (NYSE:AGU) applies perfectly to this mantra.

Click here to learn why you should track hedge funds