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Five Food Chain Stocks Hedge Funds Like: Kroger Co. (KR), Whole Foods Market Inc. (WFM), & More

Food chain store segment offers some solid stocks for investors. The stocks are robust as they deal with daily needs of the consumers. However, currently the sector seems to be going through turmoil. Major companies such as The Kroger Co. and Sprouts Farmers Market have cut their earnings outlook. Other stocks such as GNC Holdings have seen their ratings downgraded. Although the sector faces headwinds in the near-term, it still offers a good opportunity for long-term investors. Having this in mind, we decided to compile a list of food chain stocks that the smart money investors tracked by us are the most bullish on.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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Kroger Co. (NYSE:KR) has recently reported its second-quarter financial results, which included earnings of $0.47 per share, beating the consensus forecast of $0.45 per share. However, investors were disappointed as Kroger’s sales for the quarter missed the estimates. The company reported sales of $26.6 billion, below the expected $26.8 billion. Excluding fuel, Kroger’s identical supermarket sales for the quarter rose 1.7% in the second quarter. Kroger also lowered its adjusted earnings outlook for the full fiscal year. The company now expects earnings to come in between $2.10 per share and $2.20 per share, compared to a consensus estimate of $2.20 per share. Among the funds we track at Insider Monkey, 35 held $1.02 billion worth Kroger’s stock in aggregate at the end of June, having amassed 2.90% of its outstanding stock, compared to 30 funds that held $770 million worth of shares a quarter earlier.

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GNC Holdings Inc. (NYSE:GNC) is scheduled to report its quarterly earnings on September 20. GNC is expected to report earnings of $0.71 per share on revenue of $673.22 million. Among the funds in our database, 31 owned approximately $268.8 million worth of GNC Holdings’ stock in aggregate at the end of June, compared to 27 funds that held $409.8 million worth of shares at the end of March.

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Next in line is Whole Foods Market Inc. (NASDAQ:WFM). In the current quarter, the company expects a sales growth of 2%, while earnings per share are estimated at between $0.23 and $0.24. For the full fiscal 2016, the company forecasts square footage growth of around 7% and in the fiscal 2017 it is expected to amount to 6%. A total of 26 investors tracked by us reported positions in Whole Foods Market’s stock worth $721.8 million in aggregate as of the end of June, versus 25 funds and $280.6 million, respectively, a quarter earlier.

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Sprouts Farmers Market Inc. (NASDAQ:SFM) recently has lowered its guidance for the fiscal year 2016. The company expects full-year comparable store sales growth in the range of 1.5% to 2.5%. Last month, the company had guided for comparable store sales growth of 3.5% to 4.5% for the full fiscal year. The downward revision to comparable store sales growth reflects the deflationary environment. Sprouts Farmers lowered its earnings guidance for the fiscal year to between $0.83 and $0.86 per share, well below the consensus estimate of $0.94 per share. There was something for investors to cheer though as Sprouts Farmers announced a $250 million share repurchase program. Among the funds we track at Insider Monkey, 22 investors amassed $135.6 million worth Sprouts Farmers Market’s stock in aggregate at the end of June, having amassed 3.90% of its outstanding stock, compared to 18 funds that held $237.7 million worth of shares a quarter earlier.

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Vitamin Shoppe Inc. (NYSE:VSI) is a manufacturer and multi-channel specialty retailer of nutritional products. The company is now gearing for international expansion, with the opening of two stores in Panama and three in Costa Rica. However, the analysts’ view of the stock is lukewarm. The consensus price target on the stock is $30.50, which implies an upside of around 10% from the current levels. A total of 15 funds in our database held long positions in Vitamin Shoppe with a total value of $168.92 million at the end of the second quarter, having amassed 22.80% of its outstanding stock, compared to 16 funds that disclosed $191 million worth of shares in aggregate as of the end of March.

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