Hedge Funds Are Buying Smithfield Foods, Inc. (SFD)
Merger arbitrage-focused Smithfield Foods, Inc. (NYSE:SFD) investors: pay attention.
Now, according to many of your peers, hedge funds are perceived as bloated, old investment vehicles of a period lost to current times. Although there are over 8,000 hedge funds in operation today, Insider Monkey aim at the upper echelon of this group, around 525 funds. It is assumed that this group controls the majority of the smart money's total assets, and by watching their highest performing stock picks, we've spotted a number of investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we've started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 33 percentage points in 11 months (find the details here).
Just as key, optimistic insider trading sentiment is a second way to analyze the financial markets. There are lots of stimuli for an insider to cut shares of his or her company, but only one, very clear reason why they would buy. Various empirical studies have demonstrated the impressive potential of this method if "monkeys" know what to do (learn more here).
Furthermore, it's important to discuss the latest info surrounding Smithfield Foods, Inc. (NYSE:SFD).
How are hedge funds trading Smithfield Foods, Inc. (NYSE:SFD)?
At the end of the second quarter, a total of 43 of the hedge funds we track held long positions in this stock, a change of 54% from the first quarter. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully.
According to our 13F database, Starboard Value LP, managed by Jeffrey Smith, holds the biggest position in Smithfield Foods, Inc. (NYSE:SFD). Starboard Value LP has a $199.1 million call position in the stock, comprising 13.9% of its 13F portfolio. On Starboard Value LP's heels is Andrew J. M. Spokes of Farallon Capital, with a $164.7 million position; 3.2% of its 13F portfolio is allocated to the stock. Remaining hedgies that are bullish include John Paulson's Paulson & Co, Robert Emil Zoellner's Alpine Associates and John A. Levin's Levin Capital Strategies.
Now, particular hedge funds have been driving this bullishness. Starboard Value LP, managed by Jeffrey Smith, assembled the biggest call position in Smithfield Foods, Inc. (NYSE:SFD). Starboard Value LP had 199.1 million invested in the company at the end of the quarter. Andrew J. M. Spokes's Farallon Capital also initiated a $164.7 million position during the quarter. The following funds were also among the new SFD investors: John Paulson's Paulson & Co, Robert Emil Zoellner's Alpine Associates, and John A. Levin's Levin Capital Strategies.
What have insiders been doing with Smithfield Foods, Inc. (NYSE:SFD)?
Bullish insider trading is best served when the company we're looking at has seen transactions within the past six months. Over the latest half-year time period, Smithfield Foods, Inc. (NYSE:SFD) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).
We'll go over the relationship between both of these indicators in other stocks similar to Smithfield Foods, Inc. (NYSE:SFD). These stocks are Tyson Foods, Inc. (NYSE:TSN), Industrias Bachoco, S.A.B. de C.V. (ADR) (NYSE:IBA), Leucadia National Corp. (NYSE:LUK), Pilgrim's Pride Corporation (NASDAQ:PPC), and Seaboard Corporation (NYSEAMEX:SEB). This group of stocks are in the meat products industry and their market caps match SFD's market cap.
# of Hedge Funds
# of Insiders Buying
# of Insiders Selling
Tyson Foods, Inc. (NYSE:TSN)
Industrias Bachoco, S.A.B. de C.V. (ADR) (NYSE:IBA)
Leucadia National Corp. (NYSE:LUK)
Pilgrim's Pride Corporation (NASDAQ:PPC)
Seaboard Corporation (NYSEAMEX:SEB)
Using the results demonstrated by Insider Monkey's analyses, average investors must always watch hedge fund and insider trading activity, and Smithfield Foods, Inc. (NYSE:SFD) shareholders fit into this picture quite nicely.