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Did Hedge Funds Drop The Ball On Sanderson Farms, Inc. (SAFM) ?

Reymerlyn Martin

"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Sanderson Farms, Inc. (NASDAQ:SAFM).

Is Sanderson Farms, Inc. (NASDAQ:SAFM) ready to rally soon? Money managers are becoming less hopeful. The number of long hedge fund positions retreated by 2 lately. Our calculations also showed that SAFM isn't among the 30 most popular stocks among hedge funds. SAFM was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 15 hedge funds in our database with SAFM holdings at the end of the previous quarter.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

We're going to take a peek at the key hedge fund action regarding Sanderson Farms, Inc. (NASDAQ:SAFM).

Hedge fund activity in Sanderson Farms, Inc. (NASDAQ:SAFM)

At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2018. On the other hand, there were a total of 15 hedge funds with a bullish position in SAFM a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

SAFM_apr2019

The largest stake in Sanderson Farms, Inc. (NASDAQ:SAFM) was held by Renaissance Technologies, which reported holding $176.4 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $51.1 million position. Other investors bullish on the company included Balyasny Asset Management, Millennium Management, and Water Street Capital.

Because Sanderson Farms, Inc. (NASDAQ:SAFM) has faced bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Matt Sirovich and Jeremy Mindich's Scopia Capital dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $7.9 million in stock. Guy Shahar's fund, DSAM Partners, also said goodbye to its stock, about $3.4 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Sanderson Farms, Inc. (NASDAQ:SAFM) but similarly valued. We will take a look at Novanta Inc. (NASDAQ:NOVT), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Shenandoah Telecommunications Company (NASDAQ:SHEN), and South State Corporation (NASDAQ:SSB). This group of stocks' market values match SAFM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOVT,19,105167,2 RARE,14,105874,-3 SHEN,11,95482,-3 SSB,14,71136,-1 Average,14.5,94415,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $359 million in SAFM's case. Novanta Inc. (NASDAQ:NOVT) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 11 bullish hedge fund positions. Sanderson Farms, Inc. (NASDAQ:SAFM) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SAFM as the stock returned 42.9% and outperformed the market by an even larger margin.

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

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