"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Jabil Inc. (NYSE:JBL) and see how it was affected.
Jabil Inc. (NYSE:JBL) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Emcor Group Inc (NYSE:EME), Rayonier Inc. (NYSE:RYN), and Eastgroup Properties Inc (NYSE:EGP) to gather more data points.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to check out the latest hedge fund action regarding Jabil Inc. (NYSE:JBL).
Hedge fund activity in Jabil Inc. (NYSE:JBL)
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards JBL over the last 15 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Jabil Inc. (NYSE:JBL) was held by AQR Capital Management, which reported holding $113.1 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $40 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Citadel Investment Group.
Since Jabil Inc. (NYSE:JBL) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers that slashed their full holdings in the third quarter. At the top of the heap, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital cut the largest position of the 700 funds followed by Insider Monkey, worth close to $2.5 million in stock. Ravee Mehta's fund, Nishkama Capital, also dropped its stock, about $1.3 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Jabil Inc. (NYSE:JBL) but similarly valued. We will take a look at Emcor Group Inc (NYSE:EME), Rayonier Inc. (NYSE:RYN), Eastgroup Properties Inc (NYSE:EGP), and Tribune Media Company (NYSE:TRCO). This group of stocks' market valuations match JBL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EME,26,248543,8 RYN,14,318375,-5 EGP,7,31107,0 TRCO,28,1320785,-12 Average,18.75,479703,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $480 million. That figure was $275 million in JBL's case. Tribune Media Company (NYSE:TRCO) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 7 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) 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 JBL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on JBL were disappointed as the stock returned -3.4% 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.