Were Hedge Funds Wrong About Conagra Brands, Inc. (CAG)?

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 823 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 Conagra Brands, Inc. (NYSE:CAG).

Conagra Brands, Inc. (NYSE:CAG) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. CAG has seen an increase in enthusiasm from smart money recently. There were 30 hedge funds in our database with CAG holdings at the end of March. Our calculations also showed that CAG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most investors, hedge funds are assumed to be slow, old financial tools of the past. While there are greater than 8000 funds trading today, We hone in on the upper echelon of this group, approximately 850 funds. These money managers have their hands on the majority of the smart money’s total capital, and by shadowing their finest stock picks, Insider Monkey has figured out a few investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a glance at the recent hedge fund action encompassing Conagra Brands, Inc. (NYSE:CAG).

What does smart money think about Conagra Brands, Inc. (NYSE:CAG)?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in CAG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, JANA Partners was the largest shareholder of Conagra Brands, Inc. (NYSE:CAG), with a stake worth $381.9 million reported as of the end of June. Trailing JANA Partners was GAMCO Investors, which amassed a stake valued at $56.3 million. Millennium Management, Citadel Investment Group, and Scopus 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 JANA Partners allocated the biggest weight to Conagra Brands, Inc. (NYSE:CAG), around 35.84% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 0.99 percent of its 13F equity portfolio to CAG.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, established the biggest position in Conagra Brands, Inc. (NYSE:CAG). Scopus Asset Management had $23.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $8.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Donald Sussman’s Paloma Partners, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Conagra Brands, Inc. (NYSE:CAG) but similarly valued. These stocks are iQIYI, Inc. (NASDAQ:IQ), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Cheniere Energy Partners LP (NYSE:CQP), Teleflex Incorporated (NYSE:TFX), Freeport-McMoRan Inc. (NYSE:FCX), W.W. Grainger, Inc. (NYSE:GWW), and Occidental Petroleum Corporation (NYSE:OXY). All of these stocks’ market caps are similar to CAG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $905 million. That figure was $614 million in CAG’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 3 bullish hedge fund positions. Conagra Brands, Inc. (NYSE:CAG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CAG is 63. 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 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately CAG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CAG were disappointed as the stock returned 1.1% since the end of June (through 10/30) 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.