At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The J.M. Smucker Company (NYSE:SJM) at the end of the first quarter and determine whether the smart money was really smart about this stock.
The J.M. Smucker Company (NYSE:SJM) was in 36 hedge funds' portfolios at the end of the first quarter of 2020. SJM investors should be aware of an increase in enthusiasm from smart money in recent months. There were 31 hedge funds in our database with SJM holdings at the end of the previous quarter. Our calculations also showed that SJM isn't among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_375529" align="aligncenter" width="392"] Mario Gabelli of GAMCO Investors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the fresh hedge fund action regarding The J.M. Smucker Company (NYSE:SJM).
How have hedgies been trading The J.M. Smucker Company (NYSE:SJM)?
At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the fourth quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in SJM a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Ariel Investments was the largest shareholder of The J.M. Smucker Company (NYSE:SJM), with a stake worth $122.6 million reported as of the end of September. Trailing Ariel Investments was AQR Capital Management, which amassed a stake valued at $104.6 million. Renaissance Technologies, GAMCO Investors, 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 Ariel Investments allocated the biggest weight to The J.M. Smucker Company (NYSE:SJM), around 2.15% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 1.25 percent of its 13F equity portfolio to SJM.
As aggregate interest increased, some big names were breaking ground themselves. Candlestick Capital Management, managed by Jack Woodruff, initiated the largest position in The J.M. Smucker Company (NYSE:SJM). Candlestick Capital Management had $25 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $11.6 million investment in the stock during the quarter. The following funds were also among the new SJM investors: Robert Joseph Caruso's Select Equity Group, John Brennan's Sirios Capital Management, and Thomas Bailard's Bailard Inc.
Let's go over hedge fund activity in other stocks similar to The J.M. Smucker Company (NYSE:SJM). We will take a look at Domino's Pizza, Inc. (NYSE:DPZ), Weyerhaeuser Co. (NYSE:WY), The Hartford Financial Services Group, Inc. (NYSE:HIG), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks' market valuations are closest to SJM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DPZ,45,1759501,14 WY,35,195583,5 HIG,37,708354,3 CBRE,33,1142791,3 Average,37.5,951557,6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $952 million. That figure was $479 million in SJM's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand CBRE Group, Inc. (NYSE:CBRE) is the least popular one with only 33 bullish hedge fund positions. The J.M. Smucker Company (NYSE:SJM) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately SJM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SJM investors were disappointed as the stock returned -4% during the second 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 10 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.