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Is Cal-Maine Foods (CALM) A Great Investment Choice?

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Third Avenue Management, an investment management firm, published its “Small-Cap Value Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 1.92% was recorded by the fund for the second quarter of 2021, below the Russell 2000 Value Index that delivered a 4.56% gains for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Third Avenue Management, the fund mentioned Cal-Maine Foods Inc. (NASDAQ: CALM), and discussed its stance on the firm. Cal-Maine Foods Inc. is a Jackson, Mississippi-based fresh egg producer, that currently has a $1.7 billion market capitalization. TDW delivered a -6.55% return since the beginning of the year, while its 12-month returns are down to -20.36%. The stock closed at $35.08 per share on July 23, 2021.

Here is what Third Avenue Management has to say about Cal-Maine Foods Inc. in its Q2 2021 investor letter:

"The time-arbitrage/special-situations bucket predominantly comprises other out-of-favor, misunderstood companies such as Cal-Maine Foods. This company is cyclical and currently out of favor, but given its strong financial positions, Fund Management believes they have the luxury of time and capital to invest and grow until the clouds dissipate."

Poultry, Eggs
Poultry, Eggs

Photo by josekarlo01 on Unsplash

Based on our calculations, Cal-Maine Foods Inc. (NASDAQ: CALM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. TDW was in 20 hedge fund portfolios at the end of the first quarter of 2021, compared to 21 funds in the fourth quarter of 2020. Cal-Maine Foods Inc. (NASDAQ: CALM) delivered a -10.17% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. 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.

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