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Hedge Funds Turning Bearish On Kellogg Company (K)

Asma UL Husna

Is Kellogg Company (NYSE:K) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending 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 employ 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.

Is Kellogg Company (NYSE:K) a buy here? The best stock pickers are turning less bullish. The number of bullish hedge fund positions dropped by 1 recently. Our calculations also showed that K isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673253" align="aligncenter" width="473"] Jeffrey Talpins of Element Capital[/caption]

Jeffrey Talpins of Element Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action encompassing Kellogg Company (NYSE:K).

How have hedgies been trading Kellogg Company (NYSE:K)?

At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in K 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.

K_dec2019

More specifically, Renaissance Technologies was the largest shareholder of Kellogg Company (NYSE:K), with a stake worth $261.5 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $150.2 million. Pzena Investment Management, Millennium 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 Factorial Partners allocated the biggest weight to Kellogg Company (NYSE:K), around 2.05% of its portfolio. Cognios Capital is also relatively very bullish on the stock, designating 0.92 percent of its 13F equity portfolio to K.

Seeing as Kellogg Company (NYSE:K) has experienced declining sentiment from the smart money, we can see that there lies a certain "tier" of money managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Ray Dalio's Bridgewater Associates dumped the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $29.2 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dropped its stock, about $5.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Kellogg Company (NYSE:K) but similarly valued. We will take a look at The Hartford Financial Services Group, Inc. (NYSE:HIG), Stanley Black & Decker, Inc. (NYSE:SWK), Snap Inc. (NYSE:SNAP), and Cerner Corporation (NASDAQ:CERN). This group of stocks' market values resemble K's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIG,32,848897,2 SWK,26,1040404,-1 SNAP,52,2118425,7 CERN,33,954875,4 Average,35.75,1240650,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1241 million. That figure was $629 million in K's case. Snap Inc. (NYSE:SNAP) is the most popular stock in this table. On the other hand Stanley Black & Decker, Inc. (NYSE:SWK) is the least popular one with only 26 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 2.1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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