As the markets closed sharply higher on Tuesday, a number of stocks kept moving on the back of news released after the bell. In this article we will take a look at United Natural Foods, Inc. (NASDAQ:UNFI), whose stock jumped by over 1% in after-market trading on the back of earnings results, but has quickly wiped the gains in the consecutive hours and opened 1.39% lower. However, we won’t just look at the developments that sparked the move of the organic food distributor’s stock, but will also assess the hedge fund sentiment in order to see if the company has a long-term potential as an investment or the latest hype is nothing but an overreaction.
The hedge fund sentiment allows to see the potential of a stock without engaging in a complex analysis, because this type of investors focuses on the long-term horizon and because they usually allocate large amounts of capital towards an investment, they have to conduct due diligence on each company they pick. This allows piggybackers to benefit from the hedge funds’ acumen despite a 45-day delay after the end of the quarter that precedes filing their 13Fs. We have conducted extensive backtests covering the period between 1999 and 2012, and using a 60-day delay to be on the safe side, we have determined that 50 most popular stocks among hedge funds on average undeperform the market by around seven basis points per month. However, this is mainly because these companies are widely followed and are more efficiently priced as a result. On the other hand, hedge funds’ top small-cap ideas performed far better and beat the market by nearly one percentage point per month (see more details about our backtests). Based on these results, in August 2012, we launched our small-cap strategy, which involves imitating a portfolio of 15 most popular picks among over 700 hedge funds, and it has returned 118% since then, beating the market by over 60 percentage points.
With this in mind, let’s take a closer look at United Natural Foods, Inc. (NASDAQ:UNFI), which posted its financial results for the fourth quarter and full fiscal 2015. The company posted EPS of $0.72 and revenue worth $2.06 billion for the fourth quarter ended August 1, which were in line with expectations, but the full year earnings of $2.85 per share and revenue of $8.18 billion, came below the estimates of $2.86 and $8.19 billion. As a result, the stock opened slightly lower.
United Natural Foods, Inc. (NASDAQ:UNFI) also reiterated its guidance for the current fiscal year, which includes net sales between $8.51 billion and $8.67 billion, which represents an increase of 4% to 6%, while adjusted EPS is expected between $2.86 and $2.98, above the $2.85 figure posted for the last year.
The eyes today will be on the analyst updates regarding United Natural Foods, Inc. (NASDAQ:UNFI). So far, Jefferies Group has reaffirmed its ‘Buy’ rating earlier today and increased the price target to $59.00 from $58.00. However, hedge funds are rather cautious towards the company, as, during the second quarter, the number of funds with long positions in the company (among those we follow) declined by two to 15, while the total value of their holdings surged to $180.18 million from $105.24 million and amasses less than 6% of the company’s stock at the end of June.
Nevertheless, among the funds we track that own shares of United Natural Foods, Inc. (NASDAQ:UNFI), the largest shareholders increased their stakes during the second quarter or disclosed new positions as of the end of June. Among them, Ken Fisher‘s Fisher Asset Management and Greg Poole’s Echo Street Capital Management boosted their stakes by 85% and 209% to around 702,200 shares and 570,100 shares respectively. In addition, Jim Simons‘ Renaissance Technologies added the company to its equity portfolio during the April – June period and held some 511,400 shares at the end of June. Despite this, it’s important to mention that in the equity portfolios of the top shareholders of United Natural Foods in our database, the position amasses tiny portions of the total value.
With this in mind, the stock’s reaction to the earnings results supports why smart money does not bet on United Natural Foods, Inc. (NASDAQ:UNFI)’s turnaround, as it is still down by over 34% since the beginning of the year.
Disclosure: none
