Tyson Foods, Inc. (TSN): Hedge Funds Chickened Out

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Tyson Foods, Inc. (NYSE:TSN).

Tyson Foods, Inc. (NYSE:TSN) investors should pay attention to a decrease in hedge fund interest of late. TSN was in 41 hedge funds’ portfolios at the end of March. There were 58 hedge funds in our database with TSN positions at the end of the previous quarter. Our calculations also showed that TSN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sahm Adrangi of Kerrisdale Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the recent hedge fund action encompassing Tyson Foods, Inc. (NYSE:TSN).

What does smart money think about Tyson Foods, Inc. (NYSE:TSN)?

At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in TSN over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Tyson Foods, Inc. (NYSE:TSN). AQR Capital Management has a $355.4 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Iridian Asset Management, managed by David Cohen and Harold Levy, which holds a $132.3 million position; 3.2% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism contain Bernard Horn’s Polaris Capital Management, Noam Gottesman’s GLG Partners and Peter Simmie’s Bristol Gate Capital Partners. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Tyson Foods, Inc. (NYSE:TSN), around 8.33% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, designating 4.39 percent of its 13F equity portfolio to TSN.

Because Tyson Foods, Inc. (NYSE:TSN) has faced falling interest from the smart money, logic holds that there lies a certain “tier” of hedge funds who sold off their entire stakes in the third quarter. Interestingly, Aaron Cowen’s Suvretta Capital Management sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $142.9 million in stock. Renaissance Technologies, also cut its stock, about $65.4 million worth. These moves are interesting, as total hedge fund interest fell by 17 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Tyson Foods, Inc. (NYSE:TSN). We will take a look at Ball Corporation (NYSE:BLL), CRH PLC (NYSE:CRH), TE Connectivity Ltd. (NYSE:TEL), and American International Group Inc (NYSE:AIG). This group of stocks’ market valuations are closest to TSN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $921 million. That figure was $906 million in TSN’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 10 bullish hedge fund positions. Tyson Foods, Inc. (NYSE:TSN) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately TSN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TSN were disappointed as the stock returned 6.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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