Is Kellogg Company (NYSE:K) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Kellogg Company (NYSE:K) a superb stock to buy now? The smart money is getting less bullish. The number of long hedge fund positions were cut by 1 in recent months. Our calculations also showed that K 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.
Let's check out the fresh hedge fund action surrounding Kellogg Company (NYSE:K).
What have hedge funds been doing with Kellogg Company (NYSE:K)?
At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in K over the last 15 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Kellogg Company (NYSE:K), with a stake worth $281.2 million reported as of the end of March. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $72.1 million. Pzena Investment Management, D E Shaw, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Kellogg Company (NYSE:K) has experienced 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 third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the biggest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $16.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dropped its stock, about $1.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Kellogg Company (NYSE:K). These stocks are Weyerhaeuser Co. (NYSE:WY), Microchip Technology Incorporated (NASDAQ:MCHP), Chipotle Mexican Grill, Inc. (NYSE:CMG), and The Kroger Co. (NYSE:KR). This group of stocks' market caps are closest to K's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WY,25,374714,-12 MCHP,32,585215,2 CMG,35,3506651,-3 KR,22,504839,-11 Average,28.5,1242855,-6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1243 million. That figure was $607 million in K's case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand The Kroger Co. (NYSE:KR) is the least popular one with only 22 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 K wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); K investors were disappointed as the stock returned -9.2% during the same time 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.