Hedge Funds Love These 5 Supermarket Stocks

Most supermarket chains and big retailers in general have had it pretty rough this year, especially in the last few months. Though the U.S unemployment rate is at 7-year lows, there hasn’t been a significant growth in wages for the last few years, which has resulted in consumers continuing to tighten their spending budgets. Moreover, the expectations that consumers will be spending more because of the increased savings from the decline in the price of oil has failed to materialize. All of this has contributed towards a decline in comparable same-store sales among a host of supermarket chains and big-box retailers. However, despite these headwinds there are still a few supermarket stocks that continue to be favorites among institutional investors. In this article we are going to analyze five such supermarket stocks, which were backed by the most elite hedge funds at the end of September, out of the 730 funds and other investors that we cover.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Whole Foods Market, Inc. (NASDAQ:WFM)

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

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $427.25 million

The stock of Whole Foods Market, Inc. (NASDAQ:WFM) has had a gradual decline since March and currently trades down by 32.53% year-to-date. This decline could have been even more severe if the stock hadn’t jumped by 8.59% last Friday on the back of a research note published by analysts at ITG, in which they wrote that they expect the company to beat analyst estimates for the current quarter. During the third quarter, the ownership of the company among the funds in our database increased by one and the aggregate value of their WFM holdings also increased by nearly 30%. On December 8, analysts at Piper Jaffray reiterated their ‘Neutral’ rating and $30 price target on the stock. Joshua Friedman and Mitchell Julis‘ Canyon Capital Advisors initiated a large stake in Whole Foods Market, Inc. (NASDAQ:WFM) during the third quarter, purchasing over 1.8 million shares of the company.

#4 SUPERVALU INC. (NYSE:SVU)

– Elite Investors with Long Positions (as of September 30): 40

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $397 million

SUPERVALU INC. (NYSE:SVU) has lost almost 45% of its market capitalization since its peak in April and now trades down by 32% year-to-date. Despite this swift and steep decline, the company gained more popularity among hedge funds during the third quarter, with two more funds owning a stake in it at the end of September than did at the end of June. The 40 hedge funds covered that were long the company at the end of September owned almost 21% of its outstanding shares. Analysts at Deutsche Bank reiterated their ‘Buy’ rating and $13 price target on SUPERVALU INC. (NYSE:SVU) on December 8. Having increased its stake in SUPERVALU INC. by 20% to 15 million shares, Conan Laughlin‘s North Tide Capital remained the company’s largest shareholder in our database at the end of September.

#3 Kroger Co (NYSE:KR)

– Elite Investors with Long Positions (as of September 30): 42

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $1.27 billion

Multi-specialty retailer Kroger Co (NYSE:KR) is the only stock on this list that is trading in the green this year. The better-than-expected earnings that the company reported for the third quarter caused its stock to rally over 7% since and increase its year-to-date gains to almost 28%. While analysts were expecting the company to report EPS of $0.39 on revenue of $25.24 billion, Kroger Co (NYSE:KR) reported EPS of $0.43 on revenue of $25.10 billion. With such outperformance this year, it is not a surprise that Kroger is also the top stock on this list when it comes to its increase in popularity. The number of funds in our database long Kroger jumped by 27% by the end of September compared to the end of June. Interestingly, the aggregate value of hedge funds’ holdings in the company during the third quarter also increased by the same magnitude of 27%. All ten of the largest shareholders of the company in our database increased their stake in Kroger by at least 80% during the third quarter. This included  Cliff Asness‘ AQR Capital Management, which almost doubled its stake to 6.7 million shares.

#2 Target Corporation (NYSE:TGT)

– Elite Investors with Long Positions (as of September 30): 44

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $1.45 billion

Target Corporation (NYSE:TGT)’s stock is following an inverted-U shape pattern this year. After having increased gradually throughout the first-half of the year, it has been on a gradual decline since the start of the second-half of 2015 and now trades down by 5.36% year-to-date. Nevertheless, this decline has resulted in the company now boasting an attractive annual dividend yield of 3.12%. The number of funds that were long Target Corporation (NYSE:TGT) at the end of September remained constant from the end of June, but the aggregate value of the Target shares they own saw an increase of $311 million in value during the same period. On November 18, Target Corporation reported its third quarter financial figures, declaring EPS of $0.86 on revenue of $17.60 billion. Analysts on the Street had estimated that the company would report EPS of $0.86 on revenue of $17.57 billion. Ken Griffin‘s Citadel Investment Group boosted its stake in the company by 32% to 2.4 million shares during the third quarter.

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

– Elite Investors with Long Positions (as of September 30): 61

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $7.08 billion

Finally, even after being the only stock on this list which saw a decline in its popularity among hedge funds during the third quarter, Wal-Mart Stores, Inc. (NYSE:WMT) still ended up being the most-loved retailer among those same funds at the end of September. Since the start of the year, Wal-Mart Stores, Inc. (NYSE:WMT) has lost more than 30% of its market capitalization, but several funds have still held on to their conviction for the stock. The number of funds that disclosed owning a stake in Wal-Mart Stores, Inc. declined by four and the aggregate value of investors’ holdings in it declined by $1.4 billion during the third quarter. Contrary to the sentiments of several hedge funds, most analysts on the Street are ‘Neutral’ on the stock and don’t expect it to soar anytime soon, even though the company posted an earnings beat for its most recent quarter. After many quarters of keeping its stake in the company constant, Warren Buffett’s Berkshire Hathaway decreased its holding in Wal-Mart Stores, Inc. by 7% to slightly more than 56 million shares during the third quarter.

Disclosure: None