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Hedge Funds Have Never Been This Bullish On Archer Daniels Midland Company (ADM)

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In this article you are going to find out whether hedge funds think Archer Daniels Midland Company (NYSE:ADM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Archer Daniels Midland Company (NYSE:ADM) the right investment to pursue these days? The best stock pickers were getting more bullish. The number of bullish hedge fund positions rose by 7 recently. Archer Daniels Midland Company (NYSE:ADM) was in 41 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ADM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 34 hedge funds in our database with ADM holdings at the end of March.

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV 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. Keeping this in mind let's check out the recent hedge fund action surrounding Archer Daniels Midland Company (NYSE:ADM).

Do Hedge Funds Think ADM Is A Good Stock To Buy Now?

At Q2's end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADM over the last 24 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the most valuable position in Archer Daniels Midland Company (NYSE:ADM). Diamond Hill Capital has a $355.8 million position in the stock, comprising 1.4% of its 13F portfolio. The second largest stake is held by Tom Gayner of Markel Gayner Asset Management, with a $88.7 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Israel Englander's Millennium Management, Cliff Asness's AQR Capital Management and Murray Stahl's Horizon Asset Management. In terms of the portfolio weights assigned to each position Horseman Capital Management allocated the biggest weight to Archer Daniels Midland Company (NYSE:ADM), around 6.08% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to ADM.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Archer Daniels Midland Company (NYSE:ADM). Balyasny Asset Management had $23.8 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $13.7 million position during the quarter. The other funds with brand new ADM positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Jason Mudrick's Mudrick Capital Management, and Renaissance Technologies.

Let's now take a look at hedge fund activity in other stocks similar to Archer Daniels Midland Company (NYSE:ADM). We will take a look at Hilton Worldwide Holdings Inc (NYSE:HLT), Zimmer Biomet Holdings Inc (NYSE:ZBH), Rockwell Automation Inc. (NYSE:ROK), Chewy, Inc. (NYSE:CHWY), Stanley Black & Decker, Inc. (NYSE:SWK), First Republic Bank (NYSE:FRC), and Wayfair Inc (NYSE:W). All of these stocks' market caps match ADM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLT,45,4558478,-2 ZBH,48,1785063,-2 ROK,25,535840,-1 CHWY,43,634747,11 SWK,44,987529,11 FRC,34,1226197,-7 W,35,3902769,-2 Average,39.1,1947232,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1947 million. That figure was $838 million in ADM's case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) is the least popular one with only 25 bullish hedge fund positions. Archer Daniels Midland Company (NYSE:ADM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADM is 74.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on ADM as the stock returned 6.2% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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