Hedge Funds Are Crazy About UniFirst Corp (UNF)

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors endured a torrid quarter, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards UniFirst Corp (NYSE:UNF).

Is UniFirst Corp (NYSE:UNF) the right pick for your portfolio? Investors who are in the know are betting on the stock. The number of long hedge fund bets moved up by 5 in recent months. Our calculations also showed that UNF isn’t among the 30 most popular stocks among hedge funds. UNF was in 16 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with UNF positions at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Chuck Royce

Let’s take a glance at the recent hedge fund action surrounding UniFirst Corp (NYSE:UNF).

What does the smart money think about UniFirst Corp (NYSE:UNF)?

Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 45% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in UNF at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds UNF Positions

More specifically, Royce & Associates was the largest shareholder of UniFirst Corp (NYSE:UNF), with a stake worth $95.1 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $34.7 million. GLG Partners, Echo Street Capital Management, and Hudson Way Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, created the largest position in UniFirst Corp (NYSE:UNF). Echo Street Capital Management had $8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Paul Tudor Jones’s Tudor Investment Corp, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as UniFirst Corp (NYSE:UNF) but similarly valued. These stocks are FireEye Inc (NASDAQ:FEYE), PIMCO Dynamic Credit Income Fund (NYSE:PCI), MFA Financial, Inc. (NYSE:MFA), and Emergent Biosolutions Inc (NYSE:EBS).PIMCO Dynamic Credit and Mortgage Income Fund This group of stocks’ market valuations resemble UNF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FEYE 29 337414 9
PCI 2 3359 1
MFA 14 288754 1
EBS 16 219005 4
Average 15.25 212133 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $185 million in UNF’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand PIMCO Dynamic Credit Income Fund (NYSE:PCI) is the least popular one with only 2 bullish hedge fund positions. UniFirst Corp (NYSE:UNF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FEYE might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.