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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Snap-on Incorporated (NYSE:SNA).
Is SNA stock a buy? The smart money was getting more bullish. The number of long hedge fund bets went up by 2 lately. Snap-on Incorporated (NYSE:SNA) was in 26 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 31. Our calculations also showed that SNA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 24 hedge funds in our database with SNA positions at the end of the third quarter.
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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 go over the new hedge fund action encompassing Snap-on Incorporated (NYSE:SNA).
Do Hedge Funds Think SNA Is A Good Stock To Buy Now?
At Q4's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the third quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in SNA a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Snap-on Incorporated (NYSE:SNA) was held by Ariel Investments, which reported holding $184.5 million worth of stock at the end of December. It was followed by AQR Capital Management with a $86.7 million position. Other investors bullish on the company included Pzena Investment Management, Interval Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Snap-on Incorporated (NYSE:SNA), around 2.08% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to SNA.
As aggregate interest increased, key money managers have jumped into Snap-on Incorporated (NYSE:SNA) headfirst. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), created the biggest position in Snap-on Incorporated (NYSE:SNA). Schonfeld Strategic Advisors had $6.2 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $3.4 million investment in the stock during the quarter. The other funds with brand new SNA positions are Greg Eisner's Engineers Gate Manager, Jinghua Yan's TwinBeech Capital, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks similar to Snap-on Incorporated (NYSE:SNA). We will take a look at Kinross Gold Corporation (NYSE:KGC), Canopy Growth Corporation (NYSE:CGC), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), Dropbox, Inc. (NASDAQ:DBX), Interpublic Group of Companies Inc (NYSE:IPG), NRG Energy Inc (NYSE:NRG), and Bunge Limited (NYSE:BG). This group of stocks' market valuations match SNA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KGC,36,694721,7 CGC,19,133453,10 JAZZ,29,1338561,1 DBX,43,962972,0 IPG,38,581603,7 NRG,31,1465420,-1 BG,51,936635,10 Average,35.3,873338,4.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $873 million. That figure was $376 million in SNA's case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 19 bullish hedge fund positions. Snap-on Incorporated (NYSE:SNA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SNA is 43.1. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on SNA as the stock returned 38.8% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.