While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Hormel Foods Corporation (NYSE:HRL).
Hormel Foods Corporation (NYSE:HRL) was in 12 hedge funds' portfolios at the end of the third quarter of 2018. HRL has seen a decrease in activity from the world's largest hedge funds of late. There were 13 hedge funds in our database with HRL holdings at the end of the previous quarter. Our calculations also showed that HRL isn't among the 30 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 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (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_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's take a glance at the recent hedge fund action surrounding Hormel Foods Corporation (NYSE:HRL).
Hedge fund activity in Hormel Foods Corporation (NYSE:HRL)
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in HRL at the beginning of this year. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Hormel Foods Corporation (NYSE:HRL), with a stake worth $31.8 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $13.9 million. GLG Partners, Citadel Investment Group, and Gardner Russo & Gardner were also very fond of the stock, giving the stock large weights in their portfolios.
Since Hormel Foods Corporation (NYSE:HRL) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their positions entirely in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the biggest stake of the 700 funds watched by Insider Monkey, comprising an estimated $5.6 million in stock, and Roger Ibbotson's Zebra Capital Management was right behind this move, as the fund said goodbye to about $0.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Hormel Foods Corporation (NYSE:HRL). These stocks are Ameriprise Financial, Inc. (NYSE:AMP), KeyCorp (NYSE:KEY), ORIX Corporation (NYSE:IX), and Rogers Communications Inc. (NYSE:RCI). This group of stocks' market values match HRL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMP,33,1293396,3 KEY,41,802842,5 IX,6,6038,1 RCI,15,450839,-1 Average,23.75,638279,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $67 million in HRL's case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 6 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard KEY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.