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Here is What Hedge Funds Think About Cal-Maine Foods Inc (CALM)

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Cal-Maine Foods Inc (NASDAQ:CALM) based on those filings.

Is Cal-Maine Foods Inc (NASDAQ:CALM) an attractive stock to buy now? Money managers were becoming less hopeful. The number of long hedge fund positions shrunk by 1 in recent months. Cal-Maine Foods Inc (NASDAQ:CALM) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 29. Our calculations also showed that CALM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 21 hedge funds in our database with CALM holdings at the end of December.

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Eric Sprott Sprott Asset Management
Eric Sprott Sprott Asset Management

Eric Sprott of Sprott Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 we're going to review the fresh hedge fund action regarding Cal-Maine Foods Inc (NASDAQ:CALM).

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

At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in CALM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Diamond Hill Capital held the most valuable stake in Cal-Maine Foods Inc (NASDAQ:CALM), which was worth $110.7 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $50.8 million worth of shares. Balyasny Asset Management, Sprott Asset Management, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Cal-Maine Foods Inc (NASDAQ:CALM), around 0.61% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 0.59 percent of its 13F equity portfolio to CALM.

Because Cal-Maine Foods Inc (NASDAQ:CALM) has witnessed falling interest from the smart money, it's safe to say that there exists a select few hedge funds that slashed their positions entirely in the first quarter. Intriguingly, David Harding's Winton Capital Management said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, comprising about $0.8 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds in the first quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Cal-Maine Foods Inc (NASDAQ:CALM) but similarly valued. These stocks are Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), ADC Therapeutics SA (NYSE:ADCT), NuStar Energy L.P. (NYSE:NS), Kura Oncology, Inc. (NASDAQ:KURA), Vista Outdoor Inc (NYSE:VSTO), Washington Real Estate Investment Trust (NYSE:WRE), and Myovant Sciences Ltd. (NYSE:MYOV). This group of stocks' market values resemble CALM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDGL,17,494379,2 ADCT,8,233473,-4 NS,4,17919,0 KURA,32,591074,-11 VSTO,22,344887,-1 WRE,10,64215,-1 MYOV,15,94370,-2 Average,15.4,262902,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $224 million in CALM's case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 4 bullish hedge fund positions. Cal-Maine Foods Inc (NASDAQ:CALM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CALM is 53.3. 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. 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 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately CALM wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CALM were disappointed as the stock returned -5.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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