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Hedge Funds Taking Refuge In The Kroger Co. (KR)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about The Kroger Co. (NYSE:KR)?

Is The Kroger Co. (NYSE:KR) going to take off soon? The best stock pickers are getting more bullish. The number of bullish hedge fund bets increased by 12 recently. Our calculations also showed that KR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the fresh hedge fund action encompassing The Kroger Co. (NYSE:KR).

Hedge fund activity in The Kroger Co. (NYSE:KR)

At Q1’s end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KR over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of The Kroger Co. (NYSE:KR), with a stake worth $570.5 million reported as of the end of September. Trailing Berkshire Hathaway was Renaissance Technologies, which amassed a stake valued at $390.6 million. AQR Capital Management, Balyasny Asset Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to The Kroger Co. (NYSE:KR), around 7.13% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, designating 1.3 percent of its 13F equity portfolio to KR.

As aggregate interest increased, key hedge funds have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, initiated the most outsized position in The Kroger Co. (NYSE:KR). Holocene Advisors had $39.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $35.2 million position during the quarter. The other funds with brand new KR positions are Ken Heebner’s Capital Growth Management, George McCabe’s Portolan Capital Management, and James Dondero’s Highland Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Kroger Co. (NYSE:KR) but similarly valued. We will take a look at Phillips 66 (NYSE:PSX), NXP Semiconductors NV (NASDAQ:NXPI), Veeva Systems Inc (NYSE:VEEV), and SYSCO Corporation (NYSE:SYY). This group of stocks’ market valuations are closest to KR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSX 43 420207 -3
NXPI 52 1234255 -28
VEEV 33 352902 -11
SYY 35 1783679 7
Average 40.75 947761 -8.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $948 million. That figure was $1582 million in KR’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Veeva Systems Inc (NYSE:VEEV) is the least popular one with only 33 bullish hedge fund positions. The Kroger Co. (NYSE:KR) 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. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately KR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KR were disappointed as the stock returned 8.8% 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.

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