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Should I Avoid Kellogg Company (K)?

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·6 min read
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At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Kellogg Company (NYSE:K) makes for a good investment right now.

Is Kellogg Company (NYSE:K) a buy right now? The best stock pickers were selling. The number of bullish hedge fund positions decreased by 5 recently. Kellogg Company (NYSE:K) was in 32 hedge funds' portfolios at the end of March. The all time high for this statistic is 39. Our calculations also showed that K isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

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 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 we're going to analyze the latest hedge fund action surrounding Kellogg Company (NYSE:K).

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

At Q1's end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards K over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Kellogg Company (NYSE:K) was held by Arrowstreet Capital, which reported holding $216.5 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $94.6 million position. Other investors bullish on the company included Citadel Investment Group, Alkeon Capital Management, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Kellogg Company (NYSE:K), around 1.87% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to K.

Seeing as Kellogg Company (NYSE:K) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who were dropping their entire stakes by the end of the first quarter. At the top of the heap, Jinghua Yan's TwinBeech Capital sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $3.2 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also said goodbye to its stock, about $1.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 5 funds by the end of the first quarter.

Let's check out 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 Futu Holdings Limited (NASDAQ:FUTU), Genmab A/S (NASDAQ:GMAB), Church & Dwight Co., Inc. (NYSE:CHD), International Paper Company (NYSE:IP), CNH Industrial NV (NYSE:CNHI), Plug Power, Inc. (NASDAQ:PLUG), and XP Inc. (NASDAQ:XP). All of these stocks' market caps match K's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FUTU,26,1014997,9 GMAB,13,113947,-3 CHD,27,1136541,-11 IP,36,259964,5 CNHI,23,739950,7 PLUG,25,612662,4 XP,23,480268,-6 Average,24.7,622618,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $623 million. That figure was $557 million in K's case. International Paper Company (NYSE:IP) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 13 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for K is 65.9. 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 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately K wasn't nearly as popular as these 5 stocks and hedge funds that were betting on K were disappointed as the stock returned 2% since the end of March (through 7/2) 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.