5 Best Supermarket Stocks To Buy

Over the past 12 months the Discount Stores industry has posted average gains of 14.12%. Smart money managers have been able to capture a fair chunk of these gains through their astute stock picks in the industry. In order to give retail investors a chance to benefit from the industry’s gains we have compiled a list of five companies that have gained the most traction among the more than 700 hedge funds that we track at Insider Monkey.

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 36 month period beginning from September 2012 (read the details here).

5. The Fresh Market Inc (NASDAQ:TFM)

 – Investors with Long Positions (as of June 30): 18

 – Aggregate Value of Investors’ Holdings (as of June 30): $219.30 Million

The hedge fund concentration in the company at the end of June amounted to 14.10% of The Fresh Market’s outstanding shares. During the second quarter the total number of these funds holding the $1.12 billion specialty grocery retailer in their portfolios increased by four, while the total value of their investment slipped by $23.85 million. The slide came on the heels of a 21% drop in The Fresh Market Inc (NASDAQ:TFM)’s stock price during the same period however, so share ownership was increased during this time. Matt Sirovich and Jeremy Mindich‘s Scopia Capital was the largest stockholder of The Fresh Market Inc (NASDAQ:TFM) within our database as of June 30, but the fund significantly slashed its holding to just 246,600 shares in early September. The stock is down by 4.4% over the last year.

 

4. Big Lots, Inc. (NYSE:BIG)

 – Investors with Long Positions (as of June 30): 24

 – Aggregate Value of Investors’ Holdings (as of June 30): $236.03 Million

So far this year Big Lots, Inc. (NYSE:BIG)’s stock has grown by nearly 20%. However, this is not reflected in the hedge fund activity surrounding the company during the June trimester, as total funds with investments in the company fell by two and the corresponding total holdings decreased by $14.44 million in value. Citigroup recently initiated coverage on the company with a ‘Buy’ rating and a price target of $58, which provides an upside of more than 20%. Cliff Asness‘ AQR Capital Management heads our list of Big Lots, Inc. (NYSE:BIG)’s investors as it owns about 1.71 million shares after hiking its stake in the company by 8% during the second quarter. At the end of June the total value of hedge funds’ holdings in the company represented about 10.10% of its market value.

 

3. Whole Foods Market, Inc. (NASDAQ:WFM)

 – Investors with Long Positions (as of June 30): 32

 – Aggregate Value of Investors’ Holdings (as of June 30): $328.72 Million

The $11.24 billion retailer of natural and organic foods has seen its stock price slump by over 37% this year despite its popularity among hedge funds, which significantly declined following the retailer’s recent scandal, as total funds holding Whole Foods dropped by eight during the April-to-June quarter, with the total value of their investments dropping by a staggering $314.65 million. After the overcharging scandal that engulfed Whole Foods Market, Inc. (NASDAQ:WFM) involving overstated weight of packaged products, the company delivered disappointing results for the second quarter and lowered its guidance for the full 2015 fiscal year. Jim Simons‘ Renaissance Technologies saw this as a buying opportunity, as it spiked its Whole Foods Market, Inc. (NASDAQ:WFM) stake by 119% during the June quarter to 1.31 million shares valued at $51.76 million. As of the end of June hedge funds collectively held about 2.3% of Whole Foods Market’s outstanding stock.

2. Kroger Co (NYSE:KR)

 – Investors with Long Positions (as of June 30): 33

 – Aggregate Value of Investors’ Holdings (as of June 30): $1.0 Billion

Hedge funds were also underweight Kroger, as the total value of hedge funds’ holdings represented just 2.8% of Kroger’s shares. Even though Kroger Co (NYSE:KR)’s stock has surged by almost 40% over the past 12 months, the total number of investment firms we track holding the company dropped by six during the second quarter, while the aggregate value of their investments increased slightly, by $10.7 million. Steven Richman‘s East Side Capital heads our list of Kroger Co (NYSE:KR)’s shareholders as it owns some 4.73 million shares valued at $342.76 million. In a recent report, BMO Capital Markets analyst Wayne Hood explained that Kroger had leapt past the industry giant Wal-Mart Stores, Inc. (NYSE:WMT) in terms of customer service levels and the provision of organic and fresh food items. Most of this development has come on the back of customer data analytics that the company has been using to improve its performance.

1. Wal-Mart Stores, Inc. (NYSE:WMT)

 – Investors with Long Positions (as of June 30): 65

 – Aggregate Value of Investors’ Holdings (as of June 30): $8.52 Billion

While the total number of hedge funds with investments in the company fell by one during the second quarter, the total value of these holdings decreased by about $687 million. As of June 30 these funds collectively held about 3.7% of the company’s total outstanding shares. According to The Wall Street Journal’s sources, Wal-Mart Stores, Inc. (NYSE:WMT) is planning to cut some 500 jobs at its headquarters in Bentonville, Arkansas. The company is currently focusing on its e-commerce platform and wage hikes for some of the 1.3 million people that it employs in the U.S. Legendary value investor Warren Buffett‘s Berkshire Hathaway holds about 60.39 million shares of Wal-Mart Stores, Inc. (NYSE:WMT) valued at $4.28 billion.

Disclosure: None