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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Vital Farms, Inc. (NASDAQ:VITL)? The smart money sentiment can provide an answer to this question.
Is VITL a good stock to buy now? The smart money was getting more optimistic. The number of long hedge fund positions improved by 11 recently. Vital Farms, Inc. (NASDAQ:VITL) was in 11 hedge funds' portfolios at the end of September. Our calculations also showed that VITL 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.
At the moment there are several gauges stock market investors can use to evaluate their stock investments. Some of the most useful gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the market by a healthy margin (see the details here).
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's take a look at the latest hedge fund action surrounding Vital Farms, Inc. (NASDAQ:VITL).
Do Hedge Funds Think VITL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in VITL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Inherent Group held the most valuable stake in Vital Farms, Inc. (NASDAQ:VITL), which was worth $49.9 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $2 million worth of shares. Citadel Investment Group, Alyeska Investment Group, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Vital Farms, Inc. (NASDAQ:VITL), around 24.88% of its 13F portfolio. Symmetry Peak Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to VITL.
As one would reasonably expect, key hedge funds have jumped into Vital Farms, Inc. (NASDAQ:VITL) headfirst. Inherent Group, managed by Tony Davis, initiated the most valuable position in Vital Farms, Inc. (NASDAQ:VITL). Inherent Group had $49.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $2 million position during the quarter. The other funds with brand new VITL positions are Ken Griffin's Citadel Investment Group, Anand Parekh's Alyeska Investment Group, and Steve Cohen's Point72 Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Vital Farms, Inc. (NASDAQ:VITL) but similarly valued. We will take a look at ChampionX Corporation (NYSE:CHX), PennyMac Mortgage Investment Trust (NYSE:PMT), Cooper Tire & Rubber Company (NYSE:CTB), Ameresco Inc (NYSE:AMRC), Cedar Fair, L.P. (NYSE:FUN), Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), and Avanos Medical, Inc. (NYSE:AVNS). All of these stocks' market caps are similar to VITL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHX,27,383178,-3 PMT,19,56218,4 CTB,23,161958,5 AMRC,8,56869,-5 FUN,13,112538,-1 AAWW,27,254084,1 AVNS,20,200128,5 Average,19.6,174996,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $58 million in VITL's case. ChampionX Corporation (NYSE:CHX) is the most popular stock in this table. On the other hand Ameresco Inc (NYSE:AMRC) is the least popular one with only 8 bullish hedge fund positions. Vital Farms, Inc. (NASDAQ:VITL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VITL is 22.6. 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 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately VITL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VITL investors were disappointed as the stock returned -35.1% since the end of September (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.