Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Hedge fund interest in Snap-on Incorporated (NYSE:SNA) 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 SNA to other stocks including AGNC Investment Corp. (NASDAQ:AGNC), Beyond Meat, Inc. (NASDAQ:BYND), and PulteGroup, Inc. (NYSE:PHM) to get a better sense of its popularity. Our calculations also showed that SNA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the latest hedge fund action surrounding Snap-on Incorporated (NYSE:SNA).
What does smart money think about Snap-on Incorporated (NYSE:SNA)?
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNA over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Snap-on Incorporated (NYSE:SNA) was held by Ariel Investments, which reported holding $139.3 million worth of stock at the end of March. It was followed by AQR Capital Management with a $96.5 million position. Other investors bullish on the company included Arrowstreet Capital, Gates Capital Management, and East Side Capital (RR Partners).
Due to the fact that Snap-on Incorporated (NYSE:SNA) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies that decided to sell off their positions entirely by the end of the second quarter. It's worth mentioning that Kevin Cottrell and Chris LaSusa's KCL Capital said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $12.1 million in stock, and Nick Niell's Arrowgrass Capital Partners was right behind this move, as the fund said goodbye to about $2.5 million worth. These bearish behaviors are intriguing to say the least, 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 Snap-on Incorporated (NYSE:SNA). These stocks are AGNC Investment Corp. (NASDAQ:AGNC), Beyond Meat, Inc. (NASDAQ:BYND), PulteGroup, Inc. (NYSE:PHM), and CPFL Energia S.A. (NYSE:CPL). This group of stocks' market valuations are similar to SNA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGNC,23,80577,8 BYND,16,67057,16 PHM,31,838424,6 CPL,4,17571,2 Average,18.5,250907,8 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $568 million in SNA's case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 4 bullish hedge fund positions. Snap-on Incorporated (NYSE:SNA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SNA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SNA were disappointed as the stock returned -4.9% during the third quarter 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.
Disclosure: None. This article was originally published at Insider Monkey.