Was The Smart Money Right About Archer Daniels Midland Company (ADM)?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 30th, so let’s proceed with the discussion of the hedge fund sentiment on Archer Daniels Midland Company (NYSE:ADM).

Archer Daniels Midland Company (NYSE:ADM) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 35. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. ADM has experienced an increase in hedge fund interest of late. There were 34 hedge funds in our database with ADM holdings at the end of March. Our calculations also showed that ADM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a peek at the recent hedge fund action encompassing Archer Daniels Midland Company (NYSE:ADM).

Do Hedge Funds Think ADM Is A Good Stock To Buy Now?

At the end of June, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ADM over the last 24 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Archer Daniels Midland Company (NYSE:ADM), which was worth $355.8 million at the end of the second quarter. On the second spot was Markel Gayner Asset Management which amassed $88.7 million worth of shares. Millennium Management, AQR Capital Management, and Horizon Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Horseman Capital Management allocated the biggest weight to Archer Daniels Midland Company (NYSE:ADM), around 6.08% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to ADM.

As one would reasonably expect, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most outsized position in Archer Daniels Midland Company (NYSE:ADM). Balyasny Asset Management had $23.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $13.7 million investment in the stock during the quarter. The following funds were also among the new ADM investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Jason Mudrick’s Mudrick Capital Management, and Renaissance Technologies.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Archer Daniels Midland Company (NYSE:ADM) but similarly valued. We will take a look at Hilton Worldwide Holdings Inc (NYSE:HLT), Zimmer Biomet Holdings Inc (NYSE:ZBH), Rockwell Automation Inc. (NYSE:ROK), Chewy, Inc. (NYSE:CHWY), Stanley Black & Decker, Inc. (NYSE:SWK), First Republic Bank (NYSE:FRC), and Wayfair Inc (NYSE:W). This group of stocks’ market values are similar to ADM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1947 million. That figure was $838 million in ADM’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) is the least popular one with only 25 bullish hedge fund positions. Archer Daniels Midland Company (NYSE:ADM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADM is 74.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately ADM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ADM were disappointed as the stock returned 7.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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