While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, 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 The Hershey Company (NYSE:HSY).
Is HSY a good stock to buy now? Money managers were buying. The number of bullish hedge fund bets went up by 4 recently. The Hershey Company (NYSE:HSY) was in 43 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HSY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind let's take a look at the key hedge fund action surrounding The Hershey Company (NYSE:HSY).
Do Hedge Funds Think HSY Is A Good Stock To Buy Now?
At third quarter's end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HSY over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in The Hershey Company (NYSE:HSY), worth close to $570 million, comprising 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $222.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Cliff Asness's AQR Capital Management, Ken Griffin's Citadel Investment Group and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Kehrs Ridge Capital allocated the biggest weight to The Hershey Company (NYSE:HSY), around 1.51% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.57 percent of its 13F equity portfolio to HSY.
As one would reasonably expect, specific money managers were breaking ground themselves. Candlestick Capital Management, managed by Jack Woodruff, established the most valuable position in The Hershey Company (NYSE:HSY). Candlestick Capital Management had $15.8 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $9.3 million position during the quarter. The following funds were also among the new HSY investors: Brian Scudieri's Kehrs Ridge Capital, Matthew Hulsizer's PEAK6 Capital Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's now review hedge fund activity in other stocks similar to The Hershey Company (NYSE:HSY). These stocks are Republic Services, Inc. (NYSE:RSG), Cadence Design Systems Inc (NASDAQ:CDNS), Brown-Forman Corporation (NYSE:BF), PACCAR Inc (NASDAQ:PCAR), The Allstate Corporation (NYSE:ALL), T. Rowe Price Group, Inc. (NASDAQ:TROW), and Trane Technologies plc (NYSE:TT). This group of stocks' market valuations resemble HSY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RSG,37,870212,0 CDNS,37,1208067,-2 BF,32,672078,4 PCAR,34,442104,4 ALL,38,1246660,-8 TROW,34,348235,0 TT,37,831744,-3 Average,35.6,802729,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $803 million. That figure was $1231 million in HSY's case. The Allstate Corporation (NYSE:ALL) is the most popular stock in this table. On the other hand Brown-Forman Corporation (NYSE:BF) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks The Hershey Company (NYSE:HSY) is more popular among hedge funds. Our overall hedge fund sentiment score for HSY is 89. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately HSY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HSY were disappointed as the stock returned 5.6% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.