U.S. Markets closed

Snap-on Incorporated (SNA): Hedge Funds In Wait-and-See Mode

Nina Todic

Does Snap-on Incorporated (NYSE:SNA) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Snap-on Incorporated (NYSE:SNA) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that SNA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action regarding Snap-on Incorporated (NYSE:SNA).

Hedge fund activity in Snap-on Incorporated (NYSE:SNA)

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SNA over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SNA Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John W. Rogers's Ariel Investments has the biggest position in Snap-on Incorporated (NYSE:SNA), worth close to $146.2 million, amounting to 1.9% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $85 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Jeffrey Gates's Gates Capital Management and Steven Richman's RR Partners. In terms of the portfolio weights assigned to each position RR Partners allocated the biggest weight to Snap-on Incorporated (NYSE:SNA), around 5.38% of its portfolio. Gates Capital Management is also relatively very bullish on the stock, earmarking 2.12 percent of its 13F equity portfolio to SNA.

Due to the fact that Snap-on Incorporated (NYSE:SNA) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few hedge funds who sold off their positions entirely heading into Q4. It's worth mentioning that Lee Ainslie's Maverick Capital said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, valued at close to $10.1 million in stock, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund cut about $4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds heading into Q4.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Snap-on Incorporated (NYSE:SNA) but similarly valued. These stocks are Guidewire Software Inc (NYSE:GWRE), Cypress Semiconductor Corporation (NASDAQ:CY), Juniper Networks, Inc. (NYSE:JNPR), and RenaissanceRe Holdings Ltd. (NYSE:RNR). This group of stocks' market valuations are closest to SNA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWRE,22,836569,0 CY,34,1456562,-2 JNPR,30,637184,2 RNR,17,657683,-3 Average,25.75,897000,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $897 million. That figure was $488 million in SNA's case. Cypress Semiconductor Corporation (NASDAQ:CY) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 17 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. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SNA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SNA investors were disappointed as the stock returned 3.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

Related Content