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 Deere & Company (NYSE:DE) changed recently.
Hedge fund interest in Deere & Company (NYSE:DE) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DE to other stocks including Brookfield Asset Management Inc. (NYSE:BAM), General Dynamics Corporation (NYSE:GD), and HDFC Bank Limited (NYSE:HDB) to get a better sense of its popularity.
To the average investor there are a large number of formulas investors employ to appraise their stock investments. Two of the less known formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can beat the market by a solid margin (see the details here).
[caption id="attachment_193030" align="alignnone" width="600"] Tom Gayner of Markel Gayner Asset Management[/caption]
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. Keeping this in mind we're going to take a gander at the recent hedge fund action encompassing Deere & Company (NYSE:DE).
How are hedge funds trading Deere & Company (NYSE:DE)?
Heading into the fourth quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DE over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Generation Investment Management, managed by David Blood and Al Gore, holds the most valuable position in Deere & Company (NYSE:DE). Generation Investment Management has a $716 million position in the stock, comprising 5.1% of its 13F portfolio. The second most bullish fund manager is Tom Gayner of Markel Gayner Asset Management, with a $169.7 million position; 2.6% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism consist of Brandon Haley's Holocene Advisors, Phill Gross and Robert Atchinson's Adage Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Firefly Value Partners allocated the biggest weight to Deere & Company (NYSE:DE), around 9.87% of its 13F portfolio. Harvest Capital Strategies is also relatively very bullish on the stock, setting aside 6.41 percent of its 13F equity portfolio to DE.
Seeing as Deere & Company (NYSE:DE) has experienced declining sentiment from hedge fund managers, we can see that there exists a select few funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Mike Masters's Masters Capital Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, comprising close to $33.1 million in stock. Gregg Moskowitz's fund, Interval Partners, also cut its stock, about $14 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Deere & Company (NYSE:DE). We will take a look at Brookfield Asset Management Inc. (NYSE:BAM), General Dynamics Corporation (NYSE:GD), HDFC Bank Limited (NYSE:HDB), and Uber Technologies, Inc. (NYSE:UBER). This group of stocks' market caps resemble DE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAM,31,1142775,9 GD,40,7033615,0 HDB,36,2347772,9 UBER,45,3397033,-11 Average,38,3480299,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $3480 million. That figure was $1818 million in DE's case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Brookfield Asset Management Inc. (NYSE:BAM) is the least popular one with only 31 bullish hedge fund positions. Deere & Company (NYSE:DE) 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 DE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DE were disappointed as the stock returned 19% 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.
Disclosure: None. This article was originally published at Insider Monkey.