We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Pilgrim's Pride Corporation (NASDAQ:PPC).
Pilgrim's Pride Corporation (NASDAQ:PPC) was in 24 hedge funds' portfolios at the end of the fourth quarter of 2019. PPC shareholders have witnessed a decrease in hedge fund interest recently. There were 26 hedge funds in our database with PPC holdings at the end of the previous quarter. Our calculations also showed that PPC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_26575" align="aligncenter" width="400"] Louis Bacon Moore of Moore Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a gander at the fresh hedge fund action surrounding Pilgrim's Pride Corporation (NASDAQ:PPC).
Hedge fund activity in Pilgrim's Pride Corporation (NASDAQ:PPC)
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in PPC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Pilgrim's Pride Corporation (NASDAQ:PPC), with a stake worth $94.3 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $57.5 million. Millennium Management, Renaissance Technologies, and Citadel Investment Group 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 Kehrs Ridge Capital allocated the biggest weight to Pilgrim's Pride Corporation (NASDAQ:PPC), around 2.88% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, designating 0.74 percent of its 13F equity portfolio to PPC.
Seeing as Pilgrim's Pride Corporation (NASDAQ:PPC) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies who were dropping their positions entirely last quarter. Intriguingly, John Burbank's Passport Capital dropped the biggest investment of all the hedgies followed by Insider Monkey, worth close to $8 million in stock, and Joseph A. Jolson's Harvest Capital Strategies was right behind this move, as the fund said goodbye to about $3.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Pilgrim's Pride Corporation (NASDAQ:PPC). These stocks are Bunge Limited (NYSE:BG), Newell Brands Inc. (NYSE:NWL), Brookfield Property Partners LP (NYSE:BPY), and Aluminum Corp. of China Limited (NYSE:ACH). All of these stocks' market caps are similar to PPC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BG,37,689916,0 NWL,31,1424124,-1 BPY,8,63332,0 ACH,3,4752,0 Average,19.75,545531,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $300 million in PPC's case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 3 bullish hedge fund positions. Pilgrim's Pride Corporation (NASDAQ:PPC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PPC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PPC were disappointed as the stock returned -50.6% 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.