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Were Hedge Funds Right About Dumping Snap-on Incorporated (SNA)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Snap-on Incorporated (NYSE:SNA) in this article.

Is Snap-on Incorporated (NYSE:SNA) a buy here? Money managers were in a pessimistic mood. The number of long hedge fund positions dropped by 8 recently. Snap-on Incorporated (NYSE:SNA) was in 18 hedge funds' portfolios at the end of March. 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 Q1 rankings). There were 26 hedge funds in our database with SNA positions at the end of the fourth 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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we're going to view the key hedge fund action encompassing Snap-on Incorporated (NYSE:SNA).

Do Hedge Funds Think SNA Is A Good Stock To Buy Now?

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in SNA 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.

Is SNA A Good Stock To Buy?
Is SNA A Good Stock To Buy?

The largest stake in Snap-on Incorporated (NYSE:SNA) was held by Ariel Investments, which reported holding $239 million worth of stock at the end of December. It was followed by AQR Capital Management with a $148.3 million position. Other investors bullish on the company included PEAK6 Capital Management, Pzena Investment Management, 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 2.35% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to SNA.

Judging by the fact that Snap-on Incorporated (NYSE:SNA) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there is a sect of funds who sold off their positions entirely in the first quarter. At the top of the heap, Gregg Moskowitz's Interval Partners said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, valued at an estimated $13.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dumped its stock, about $11.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds in the first quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Snap-on Incorporated (NYSE:SNA) but similarly valued. These stocks are C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), CenterPoint Energy, Inc. (NYSE:CNP), Shaw Communications Inc (NYSE:SJR), Nuance Communications Inc. (NASDAQ:NUAN), W.P. Carey Inc. (NYSE:WPC), NortonLifeLock Inc. (NASDAQ:NLOK), and Ceridian HCM Holding Inc. (NYSE:CDAY). All of these stocks' market caps resemble SNA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHRW,23,359592,-6 CNP,25,370742,-5 SJR,21,384820,2 NUAN,57,4129595,-3 WPC,23,162726,5 NLOK,32,1028034,3 CDAY,28,1097868,2 Average,29.9,1076197,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $1076 million. That figure was $432 million in SNA's case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Snap-on Incorporated (NYSE:SNA) is even less popular than SJR. Our overall hedge fund sentiment score for SNA is 14.4. 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. Hedge funds dodged a bullet by taking a bearish stance towards SNA. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd but managed to beat the market again by 10.1 percentage points. Unfortunately SNA wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); SNA investors were disappointed as the stock returned -2.2% since the end of the first quarter (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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