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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Kellogg Company (NYSE:K) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Kellogg Company (NYSE:K) undervalued? Money managers are in a bullish mood. The number of long hedge fund bets went up by 1 lately. Our calculations also showed that K isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
According to most shareholders, hedge funds are viewed as slow, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading today, We look at the top tier of this group, approximately 850 funds. These hedge fund managers shepherd the lion’s share of the hedge fund industry’s total capital, and by tracking their highest performing stock picks, Insider Monkey has discovered various investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jim Simons of Renaissance Technologies
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. With all of this in mind let’s go over the key hedge fund action encompassing Kellogg Company (NYSE:K).
What have hedge funds been doing with Kellogg Company (NYSE:K)?
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the third quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in K a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Kellogg Company (NYSE:K), which was worth $208.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $85.7 million worth of shares. Pzena Investment Management, Carlson Capital, and GAMCO Investors 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 Factorial Partners allocated the biggest weight to Kellogg Company (NYSE:K), around 2% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, setting aside 0.93 percent of its 13F equity portfolio to K.
Consequently, some big names have been driving this bullishness. Carlson Capital, managed by Clint Carlson, established the most outsized position in Kellogg Company (NYSE:K). Carlson Capital had $46.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $12.6 million position during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, D. E. Shaw’s D E Shaw, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Kellogg Company (NYSE:K) but similarly valued. We will take a look at Rockwell Automation Inc. (NYSE:ROK), Splunk Inc (NASDAQ:SPLK), TELUS Corporation (NYSE:TU), and Synchrony Financial (NYSE:SYF). This group of stocks’ market valuations match K’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROK | 39 | 614212 | 10 |
| SPLK | 38 | 538860 | 2 |
| TU | 13 | 254674 | -7 |
| SYF | 44 | 2269786 | -5 |
| Average | 33.5 | 919383 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $919 million. That figure was $570 million in K’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 13 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the least popular stock in this group but hedge fund interest is still below 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 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on K as the stock returned -10% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
