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Is Hormel Foods Corporation (HRL) Going to Burn These Hedge Funds?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Hormel Foods Corporation (NYSE:HRL).

Is Hormel Foods Corporation (NYSE:HRL) a buy here? Prominent investors were taking a pessimistic view. The number of bullish hedge fund positions shrunk by 2 in recent months. Hormel Foods Corporation (NYSE:HRL) was in 24 hedge funds' portfolios at the end of June. The all time high for this statistic is 31. Our calculations also showed that HRL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 let's check out the new hedge fund action surrounding Hormel Foods Corporation (NYSE:HRL).

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

At the end of June, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HRL over the last 24 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Hormel Foods Corporation (NYSE:HRL) was held by AQR Capital Management, which reported holding $154.3 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $86.2 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Bridgewater Associates. In terms of the portfolio weights assigned to each position Candlestick Capital Management allocated the biggest weight to Hormel Foods Corporation (NYSE:HRL), around 0.48% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to HRL.

Since Hormel Foods Corporation (NYSE:HRL) has faced a decline in interest from the smart money, it's safe to say that there were a few funds who sold off their entire stakes heading into Q3. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $2.4 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund sold off about $1.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Hormel Foods Corporation (NYSE:HRL) but similarly valued. We will take a look at Weyerhaeuser Co. (NYSE:WY), Kansas City Southern (NYSE:KSU), Teladoc Health, Inc (NYSE:TDOC), Verisign, Inc. (NASDAQ:VRSN), Telefonica S.A. (NYSE:TEF), Consolidated Edison, Inc. (NYSE:ED), and Realty Income Corporation (NYSE:O). All of these stocks' market caps resemble HRL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WY,39,662871,1 KSU,61,3303297,12 TDOC,43,3574007,1 VRSN,41,6102142,-1 TEF,4,8903,-2 ED,30,533462,8 O,23,221703,5 Average,34.4,2058055,3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.4 hedge funds with bullish positions and the average amount invested in these stocks was $2058 million. That figure was $562 million in HRL's case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 4 bullish hedge fund positions. Hormel Foods Corporation (NYSE:HRL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HRL is 43.8. 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 negative signal and 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 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately HRL wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HRL investors were disappointed as the stock returned -11.1% since the end of June (through 10/22) 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 most of these stocks already outperformed the market in 2021.

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