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Is Archer Daniels Midland Company (ADM) Going to Burn These Hedge Funds?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 866 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article we look at what those investors think of Archer Daniels Midland Company (NYSE:ADM).

Archer Daniels Midland Company (NYSE:ADM) was in 34 hedge funds' portfolios at the end of March. The all time high for this statistic is 35. ADM investors should be aware of a decrease in support from the world's most elite money managers in recent months. There were 35 hedge funds in our database with ADM holdings at the end of December. Our calculations also showed that ADM isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery 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. Keeping this in mind we're going to check out the fresh hedge fund action encompassing Archer Daniels Midland Company (NYSE:ADM).

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

At first quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in ADM a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is ADM A Good Stock To Buy?
Is ADM A Good Stock To Buy?

Among these funds, Diamond Hill Capital held the most valuable stake in Archer Daniels Midland Company (NYSE:ADM), which was worth $324.2 million at the end of the fourth quarter. On the second spot was Markel Gayner Asset Management which amassed $83.4 million worth of shares. AQR Capital Management, Bridgewater Associates, and Adage Capital 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 6.03% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, earmarking 1.31 percent of its 13F equity portfolio to ADM.

Due to the fact that Archer Daniels Midland Company (NYSE:ADM) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers that slashed their full holdings heading into Q2. Intriguingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $44 million in stock. D. E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $4.8 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds heading into Q2.

Let's now review hedge fund activity in other stocks similar to Archer Daniels Midland Company (NYSE:ADM). These stocks are Motorola Solutions Inc (NYSE:MSI), Republic Services, Inc. (NYSE:RSG), Companhia Paranaense de Energia (NYSE:ELP), ArcelorMittal (NYSE:MT), Palo Alto Networks Inc (NYSE:PANW), V.F. Corporation (NYSE:VFC), and NatWest Group plc (NYSE:NWG). This group of stocks' market caps are similar to ADM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSI,29,1000522,-6 RSG,36,1073744,0 ELP,5,36122,-4 MT,21,709788,3 PANW,64,4015196,3 VFC,31,1109135,0 NWG,6,4359,3 Average,27.4,1135552,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $1136 million. That figure was $696 million in ADM's case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia (NYSE:ELP) is the least popular one with only 5 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 57.7. 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. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Hedge funds were also right about betting on ADM, though not to the same extent, as the stock returned 8.4% since Q1 (through June 25th) and outperformed the market as well.

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