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 Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA).
Hedge fund interest in Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Tower Semiconductor Ltd. (NASDAQ:TSEM), Xencor Inc (NASDAQ:XNCR), and Micro Focus Intl PLC (NYSE:MFGP) to gather more data points. Our calculations also showed that IBA 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.
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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_193003" align="aligncenter" width="399"] Chuck Royce of Royce & Associates[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to check out the fresh hedge fund action encompassing Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA).
Hedge fund activity in Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA)
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in IBA a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) was held by Renaissance Technologies, which reported holding $22.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $4.3 million position. The only other hedge fund that is bullish on the company was Sprott Asset Management.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) but similarly valued. These stocks are Tower Semiconductor Ltd. (NASDAQ:TSEM), Xencor Inc (NASDAQ:XNCR), Micro Focus Intl PLC (NYSE:MFGP), and CIT Group Inc. (NYSE:CIT). This group of stocks' market values are similar to IBA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSEM,11,272127,-5 XNCR,13,162286,-3 MFGP,9,13639,-2 CIT,37,315095,2 Average,17.5,190787,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $29 million in IBA's case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is even less popular than MFGP. Hedge funds dodged a bullet by taking a bearish stance towards IBA. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately IBA wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); IBA investors were disappointed as the stock returned 3.1% during the second quarter (through May 22nd) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.