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Did Hedge Funds Drop The Ball On Jabil Inc. (JBL) ?

Reymerlyn Martin

The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Jabil Inc. (NYSE:JBL) from the perspective of those elite funds.

Is Jabil Inc. (NYSE:JBL) undervalued? Prominent investors are taking a bearish view. The number of long hedge fund positions retreated by 2 recently. Our calculations also showed that JBL isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

BlueMountain Capital Management's Returns, AUM and Holdings

We're going to analyze the key hedge fund action surrounding Jabil Inc. (NYSE:JBL).

What have hedge funds been doing with Jabil Inc. (NYSE:JBL)?

Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in JBL over the last 14 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

JBL_apr2019

Among these funds, AQR Capital Management held the most valuable stake in Jabil Inc. (NYSE:JBL), which was worth $119.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $54.1 million worth of shares. Moreover, Millennium Management, Pzena Investment Management, and D E Shaw were also bullish on Jabil Inc. (NYSE:JBL), allocating a large percentage of their portfolios to this stock.

Seeing as Jabil Inc. (NYSE:JBL) has faced bearish sentiment from the smart money, we can see that there were a few fund managers that slashed their entire stakes last quarter. Interestingly, Jeffrey Jacobowitz's Simcoe Capital Management dumped the biggest position of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $37.8 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also sold off its stock, about $14.7 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Jabil Inc. (NYSE:JBL) but similarly valued. We will take a look at First Financial Bankshares Inc (NASDAQ:FFIN), Insperity Inc (NYSE:NSP), Flowers Foods, Inc. (NYSE:FLO), and Grupo Financiero Galicia S.A. (NASDAQ:GGAL). This group of stocks' market caps match JBL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFIN,6,6455,0 NSP,24,262674,8 FLO,20,196727,0 GGAL,19,133358,4 Average,17.25,149804,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $316 million in JBL's case. Insperity Inc (NYSE:NSP) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 6 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on JBL as the stock returned 24.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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