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Hedge Funds Have Never Been This Bullish On SYSCO Corporation (SYY)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards SYSCO Corporation (NYSE:SYY) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is SYSCO Corporation (NYSE:SYY) a buy here? The smart money was in an optimistic mood. The number of bullish hedge fund bets advanced by 7 lately. SYSCO Corporation (NYSE:SYY) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SYY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 35 hedge funds in our database with SYY positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most market participants, hedge funds are perceived as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds trading today, We choose to focus on the leaders of this club, approximately 850 funds. These money managers have their hands on the lion’s share of the hedge fund industry’s total asset base, and by keeping an eye on their unrivaled picks, Insider Monkey has come up with many investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a peek at the latest hedge fund action encompassing SYSCO Corporation (NYSE:SYY).

How have hedgies been trading SYSCO Corporation (NYSE:SYY)?

At the end of the second quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in SYY a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in SYSCO Corporation (NYSE:SYY) was held by Trian Partners, which reported holding $1332.6 million worth of stock at the end of September. It was followed by Yacktman Asset Management with a $314.1 million position. Other investors bullish on the company included Appaloosa Management LP, Alyeska Investment Group, and Southpoint Capital Advisors. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to SYSCO Corporation (NYSE:SYY), around 27.62% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 5.01 percent of its 13F equity portfolio to SYY.

As aggregate interest increased, specific money managers have jumped into SYSCO Corporation (NYSE:SYY) headfirst. Appaloosa Management LP, managed by David Tepper, assembled the biggest position in SYSCO Corporation (NYSE:SYY). Appaloosa Management LP had $102.5 million invested in the company at the end of the quarter. John Smith Clark’s Southpoint Capital Advisors also made a $43.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Scott Ferguson’s Sachem Head Capital, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks similar to SYSCO Corporation (NYSE:SYY). We will take a look at Cintas Corporation (NASDAQ:CTAS), WEC Energy Group, Inc. (NYSE:WEC), The Clorox Company (NYSE:CLX), Verisk Analytics, Inc. (NASDAQ:VRSK), IAC/InterActiveCorp (NASDAQ:IAC), Agilent Technologies Inc. (NYSE:A), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks’ market valuations are similar to SYY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTAS 34 531899 -8
WEC 30 290696 1
CLX 36 1488687 -5
VRSK 36 981827 5
IAC 60 4955863 3
A 38 2815048 3
PAYX 36 877442 -5
Average 38.6 1705923 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1706 million. That figure was $2177 million in SYY’s case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 30 bullish hedge fund positions. SYSCO Corporation (NYSE:SYY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYY is 60. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately SYY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SYY were disappointed as the stock returned 10.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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