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Were These Hedge Funds Right About Selling General Mills, Inc. (GIS)?

Reymerlyn Martin
·6 min read

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 General Mills, Inc. (NYSE:GIS).

Is General Mills, Inc. (NYSE:GIS) a bargain? The smart money was turning less bullish. The number of long hedge fund positions fell by 2 lately. General Mills, Inc. (NYSE:GIS) was in 37 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. Our calculations also showed that GIS 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). There were 39 hedge funds in our database with GIS holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are numerous gauges investors use to appraise their stock investments. Some of the most useful gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outperform the broader indices by a significant margin (see the details here).

Lee Ainslie MAVERICK CAPITAL
Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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 let's go over the new hedge fund action regarding General Mills, Inc. (NYSE:GIS).

How have hedgies been trading General Mills, Inc. (NYSE:GIS)?

Heading into the third quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2020. On the other hand, there were a total of 39 hedge funds with a bullish position in GIS a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is GIS A Good Stock To Buy?
Is GIS A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in General Mills, Inc. (NYSE:GIS), which was worth $334.5 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $158.6 million worth of shares. D E Shaw, AQR Capital Management, and Adage 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 Half Sky Capital allocated the biggest weight to General Mills, Inc. (NYSE:GIS), around 6.64% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, dishing out 2.91 percent of its 13F equity portfolio to GIS.

Since General Mills, Inc. (NYSE:GIS) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest stake of the "upper crust" of funds followed by Insider Monkey, totaling about $10.5 million in stock, and David Cohen and Harold Levy's Iridian Asset Management was right behind this move, as the fund said goodbye to about $7.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as General Mills, Inc. (NYSE:GIS) but similarly valued. We will take a look at Walgreens Boots Alliance Inc (NASDAQ:WBA), Emerson Electric Co. (NYSE:EMR), eBay Inc (NASDAQ:EBAY), Centene Corporation (NYSE:CNC), FedEx Corporation (NYSE:FDX), L3Harris Technologies, Inc. (NYSE:LHX), and Monster Beverage Corp (NASDAQ:MNST). This group of stocks' market valuations are similar to GIS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WBA,45,490238,0 EMR,36,421821,3 EBAY,58,5017459,6 CNC,71,3079774,5 FDX,46,1254577,-4 LHX,50,1312574,7 MNST,35,1880728,-8 Average,48.7,1922453,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $1922 million. That figure was $913 million in GIS's case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Monster Beverage Corp (NASDAQ:MNST) is the least popular one with only 35 bullish hedge fund positions. General Mills, Inc. (NYSE:GIS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GIS is 32.2. 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 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately GIS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GIS investors were disappointed as the stock returned -2.5% 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 most of these stocks already outperformed the market in 2020.

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

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