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Were These Hedge Funds Right About Buying Post Holdings Inc (POST)?

Abigail Fisher
·6 min read

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 Peltz's recent General Electric 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 Post Holdings Inc (NYSE:POST).

Post Holdings Inc (NYSE:POST) has seen an increase in activity from the world's largest hedge funds of late. Post Holdings Inc (NYSE:POST) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 44. Our calculations also showed that POST isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Harold Levy Iridian Asset Management
Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we're going to check out the fresh hedge fund action encompassing Post Holdings Inc (NYSE:POST).

How have hedgies been trading Post Holdings Inc (NYSE:POST)?

At Q2's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in POST over the last 20 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Route One Investment Company was the largest shareholder of Post Holdings Inc (NYSE:POST), with a stake worth $613.4 million reported as of the end of June. Trailing Route One Investment Company was Iridian Asset Management, which amassed a stake valued at $198 million. Diamond Hill Capital, Bridger Management, and Candlestick Capital 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 Route One Investment Company allocated the biggest weight to Post Holdings Inc (NYSE:POST), around 17.5% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, setting aside 7.1 percent of its 13F equity portfolio to POST.

Now, some big names have been driving this bullishness. Kehrs Ridge Capital, managed by Brian Scudieri, established the most outsized position in Post Holdings Inc (NYSE:POST). Kehrs Ridge Capital had $7.2 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, Matthew Hulsizer's PEAK6 Capital Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's also examine hedge fund activity in other stocks similar to Post Holdings Inc (NYSE:POST). We will take a look at Five Below Inc (NASDAQ:FIVE), NovoCure Limited (NASDAQ:NVCR), Enphase Energy Inc (NASDAQ:ENPH), Tandem Diabetes Care Inc (NASDAQ:TNDM), Allogene Therapeutics, Inc. (NASDAQ:ALLO), Globant SA (NYSE:GLOB), and Huaneng Power International Inc (NYSE:HNP). This group of stocks' market valuations are closest to POST's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIVE,42,988706,11 NVCR,27,384434,0 ENPH,40,716678,5 TNDM,32,401577,4 ALLO,24,329892,12 GLOB,17,235992,0 HNP,2,2391,-1 Average,26.3,437096,4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $1240 million in POST's case. Five Below Inc (NASDAQ:FIVE) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 2 bullish hedge fund positions. Post Holdings Inc (NYSE:POST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for POST is 71.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately POST wasn't nearly as popular as these 10 stocks and hedge funds that were betting on POST were disappointed as the stock returned -2% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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