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2019 Review: Top Hedge Fund Stocks vs. Post Holdings Inc (POST)

Nina Todic

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Post Holdings Inc (NYSE:POST) changed recently.

Post Holdings Inc (NYSE:POST) was in 28 hedge funds' portfolios at the end of the third quarter of 2019. POST investors should pay attention to an increase in enthusiasm from smart money recently. There were 26 hedge funds in our database with POST positions at the end of the previous quarter. Our calculations also showed that POST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26286" align="aligncenter" width="359"] Jim Simons of Renaissance Technologies[/caption]

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We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to review the recent hedge fund action regarding Post Holdings Inc (NYSE:POST).

What does smart money think about Post Holdings Inc (NYSE:POST)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in POST a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Route One Investment Company held the most valuable stake in Post Holdings Inc (NYSE:POST), which was worth $650.7 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $198.2 million worth of shares. Diamond Hill Capital, Bridger Management, and Renaissance Technologies 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 Route One Investment Company allocated the biggest weight to Post Holdings Inc (NYSE:POST), around 19.62% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, earmarking 8.03 percent of its 13F equity portfolio to POST.

As aggregate interest increased, specific money managers have jumped into Post Holdings Inc (NYSE:POST) headfirst. One Fin Capital Management, managed by David MacKnight, assembled the largest position in Post Holdings Inc (NYSE:POST). One Fin Capital Management had $11.2 million invested in the company at the end of the quarter. James Dinan's York Capital Management also made a $9.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Sander Gerber's Hudson Bay Capital Management, Matthew Tewksbury's Stevens Capital Management, and John A. Levin's Levin Capital Strategies.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Post Holdings Inc (NYSE:POST) but similarly valued. We will take a look at DXC Technology Company (NYSE:DXC), Assurant, Inc. (NYSE:AIZ), Graco Inc. (NYSE:GGG), and Hyatt Hotels Corporation (NYSE:H). This group of stocks' market values match POST's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DXC,34,1144765,-7 AIZ,27,905471,-2 GGG,19,187451,-5 H,28,932324,5 Average,27,792503,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $793 million. That figure was $1466 million in POST's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Graco Inc. (NYSE:GGG) is the least popular one with only 19 bullish hedge fund positions. Post Holdings Inc (NYSE:POST) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately POST wasn't nearly as popular as these 20 stocks and hedge funds that were betting on POST were disappointed as the stock returned 21.2% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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