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Were Hedge Funds Right About Tractor Supply Company (TSCO)?

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Tractor Supply Company (NASDAQ:TSCO).

Is Tractor Supply Company (NASDAQ:TSCO) the right pick for your portfolio? The smart money is taking a bullish view. The number of long hedge fund positions increased by 3 lately. Our calculations also showed that TSCO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

At the moment there are a lot of metrics stock market investors employ to evaluate stocks. Some of the most underrated metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the broader indices by a superb amount (see the details here).

[caption id="attachment_189632" align="aligncenter" width="399"] David Harding of Winton Capital Management[/caption]

David Harding

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to review the recent hedge fund action regarding Tractor Supply Company (NASDAQ:TSCO).

Hedge fund activity in Tractor Supply Company (NASDAQ:TSCO)

At Q4's end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in TSCO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Cliff Asness's AQR Capital Management has the largest position in Tractor Supply Company (NASDAQ:TSCO), worth close to $142.6 million, corresponding to 0.2% of its total 13F portfolio. The second largest stake is held by Robert Pohly of Samlyn Capital, with a $79 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of John Overdeck and David Siegel's Two Sigma Advisors, Renaissance Technologies and Lee Hicks and Jan Koerner's Park Presidio Capital. In terms of the portfolio weights assigned to each position Blackcrane Capital allocated the biggest weight to Tractor Supply Company (NASDAQ:TSCO), around 6.58% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, dishing out 5.05 percent of its 13F equity portfolio to TSCO.

Consequently, some big names were leading the bulls' herd. Blackcrane Capital, managed by Daniel Kim, created the largest position in Tractor Supply Company (NASDAQ:TSCO). Blackcrane Capital had $8.2 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $7.5 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, Steve Cohen's Point72 Asset Management, and Gavin Baker's Atreides Management.

Let's now review hedge fund activity in other stocks similar to Tractor Supply Company (NASDAQ:TSCO). We will take a look at StoneCo Ltd. (NASDAQ:STNE), Elanco Animal Health Incorporated (NYSE:ELAN), LKQ Corporation (NASDAQ:LKQ), and Avery Dennison Corporation (NYSE:AVY). This group of stocks' market valuations match TSCO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STNE,29,1474730,1 ELAN,23,620585,-4 LKQ,52,1559414,9 AVY,22,105570,-3 Average,31.5,940075,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $940 million. That figure was $697 million in TSCO's case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 22 bullish hedge fund positions. Tractor Supply Company (NASDAQ:TSCO) is not the most popular stock in this group but hedge fund interest is still above average. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on TSCO as the stock returned 9.6% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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