While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Conagra Brands, Inc. (NYSE:CAG).
Is CAG stock a buy? Conagra Brands, Inc. (NYSE:CAG) was in 28 hedge funds' portfolios at the end of December. The all time high for this statistic is 50. CAG investors should pay attention to a decrease in support from the world's most elite money managers lately. There were 35 hedge funds in our database with CAG holdings at the end of September. Our calculations also showed that CAG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Barry Rosenstein of JANA Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to take a look at the fresh hedge fund action encompassing Conagra Brands, Inc. (NYSE:CAG).
Do Hedge Funds Think CAG Is A Good Stock To Buy Now?
At the end of December, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in CAG a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Barry Rosenstein's JANA Partners has the most valuable position in Conagra Brands, Inc. (NYSE:CAG), worth close to $393.7 million, amounting to 26.7% of its total 13F portfolio. On JANA Partners's heels is Mario Gabelli of GAMCO Investors, with a $50 million position; 0.5% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, John Overdeck and David Siegel's Two Sigma Advisors and Ray Dalio's Bridgewater Associates. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Conagra Brands, Inc. (NYSE:CAG), around 26.65% of its 13F portfolio. Stevens Capital Management is also relatively very bullish on the stock, dishing out 0.72 percent of its 13F equity portfolio to CAG.
Seeing as Conagra Brands, Inc. (NYSE:CAG) has experienced a decline in interest from the smart money, it's safe to say that there were a few money managers that slashed their positions entirely by the end of the fourth quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management sold off the largest position of all the hedgies followed by Insider Monkey, totaling close to $4.1 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $3.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds by the end of the fourth quarter.
Let's now review hedge fund activity in other stocks similar to Conagra Brands, Inc. (NYSE:CAG). We will take a look at Broadridge Financial Solutions, Inc. (NYSE:BR), Martin Marietta Materials, Inc. (NYSE:MLM), NovoCure Limited (NASDAQ:NVCR), Tyler Technologies, Inc. (NYSE:TYL), Hartford Financial Services Group Inc (NYSE:HIG), NICE Ltd (NASDAQ:NICE), and GDS Holdings Limited (NASDAQ:GDS). This group of stocks' market values are closest to CAG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BR,25,244137,-8 MLM,41,2010592,3 NVCR,22,417787,0 TYL,32,592915,1 HIG,36,1559898,0 NICE,26,726097,0 GDS,39,2874120,-8 Average,31.6,1203649,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $1204 million. That figure was $634 million in CAG's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand NovoCure Limited (NASDAQ:NVCR) is the least popular one with only 22 bullish hedge fund positions. Conagra Brands, Inc. (NYSE:CAG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CAG is 30.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately CAG wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); CAG investors were disappointed as the stock returned 5.2% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.