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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The J.M. Smucker Company (NYSE:SJM).
Is SJM a good stock to buy? Hedge funds were taking a bearish view. The number of bullish hedge fund positions were trimmed by 7 lately. The J.M. Smucker Company (NYSE:SJM) was in 31 hedge funds' portfolios at the end of September. The all time high for this statistic is 47. Our calculations also showed that SJM 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.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Ryan Tolkin, CIO of Schonfeld Strategic Advisors
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 we're going to take a look at the recent hedge fund action regarding The J.M. Smucker Company (NYSE:SJM).
Do Hedge Funds Think SJM Is A Good Stock To Buy Now?
At Q3's end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SJM over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The J.M. Smucker Company (NYSE:SJM) was held by Renaissance Technologies, which reported holding $176 million worth of stock at the end of September. It was followed by Select Equity Group with a $121.2 million position. Other investors bullish on the company included Ariel Investments, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to The J.M. Smucker Company (NYSE:SJM), around 1.7% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 1.34 percent of its 13F equity portfolio to SJM.
Seeing as The J.M. Smucker Company (NYSE:SJM) has experienced declining sentiment from the smart money, it's easy to see that there was a specific group of funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the biggest position of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $20.7 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also sold off its stock, about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 7 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The J.M. Smucker Company (NYSE:SJM) but similarly valued. We will take a look at Darden Restaurants, Inc. (NYSE:DRI), International Flavors & Fragrances Inc (NYSE:IFF), Essex Property Trust Inc (NYSE:ESS), Logitech International SA (NASDAQ:LOGI), 10x Genomics, Inc. (NASDAQ:TXG), Masimo Corporation (NASDAQ:MASI), and Avantor, Inc. (NYSE:AVTR). All of these stocks' market caps are similar to SJM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRI,41,1183411,-8 IFF,31,202593,0 ESS,28,549766,0 LOGI,15,406297,2 TXG,31,527141,12 MASI,27,171338,-5 AVTR,56,1405872,22 Average,32.7,635203,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $763 million in SJM's case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand Logitech International SA (NASDAQ:LOGI) is the least popular one with only 15 bullish hedge fund positions. The J.M. Smucker Company (NYSE:SJM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SJM is 37.3. 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 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 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately SJM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SJM investors were disappointed as the stock returned 1.1% since the end of September (through 12/18) 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.