Is Altria Group Inc (NYSE:MO) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Altria Group Inc (NYSE:MO) was in 36 hedge funds' portfolios at the end of March. MO shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. There were 41 hedge funds in our database with MO holdings at the end of the previous quarter. Our calculations also showed that MO isn't among the 30 most popular stocks among hedge funds.
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.
We're going to analyze the new hedge fund action encompassing Altria Group Inc (NYSE:MO).
What have hedge funds been doing with Altria Group Inc (NYSE:MO)?
At Q1's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in MO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Gardner Russo & Gardner was the largest shareholder of Altria Group Inc (NYSE:MO), with a stake worth $293.7 million reported as of the end of March. Trailing Gardner Russo & Gardner was AQR Capital Management, which amassed a stake valued at $154.6 million. Adage Capital Management, Citadel Investment Group, and Polar Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Altria Group Inc (NYSE:MO) has faced a decline in interest from hedge fund managers, it's safe to say that there is a sect of hedge funds who were dropping their positions entirely heading into Q3. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $147.5 million in stock. Jim Simons's fund, Renaissance Technologies, also dumped its stock, about $115.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 5 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Altria Group Inc (NYSE:MO) but similarly valued. These stocks are Costco Wholesale Corporation (NASDAQ:COST), HDFC Bank Limited (NYSE:HDB), Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR), and GlaxoSmithKline plc (NYSE:GSK). All of these stocks' market caps match MO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COST,44,3323751,-4 HDB,24,961489,-4 PBR,30,2312742,-2 GSK,29,1850155,6 Average,31.75,2112034,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $2112 million. That figure was $824 million in MO's case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 24 bullish hedge fund positions. Altria Group Inc (NYSE:MO) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MO were disappointed as the stock returned -12.6% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.