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Hedge Funds Warming Up To US Foods Holding Corp. (USFD)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of US Foods Holding Corp. (NYSE:USFD).

Is US Foods Holding Corp. (NYSE:USFD) the right pick for your portfolio? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund positions moved up by 3 in recent months. Our calculations also showed that USFD isn’t among the 30 most popular stocks among hedge funds. USFD was in 42 hedge funds’ portfolios at the end of September. There were 39 hedge funds in our database with USFD positions at the end of the previous quarter.

At the moment there are many methods stock traders can use to analyze stocks. A pair of the less utilized methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can outclass the S&P 500 by a significant amount (see the details here).

Ricky Sandler of Eminence Capital

Ricky Sandler of Eminence Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the fresh hedge fund action encompassing US Foods Holding Corp. (NYSE:USFD).

What have hedge funds been doing with US Foods Holding Corp. (NYSE:USFD)?

At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in USFD 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.

USFD_nov2019

More specifically, Eminence Capital was the largest shareholder of US Foods Holding Corp. (NYSE:USFD), with a stake worth $135.4 million reported as of the end of September. Trailing Eminence Capital was Sachem Head Capital, which amassed a stake valued at $119.2 million. D E Shaw, Point72 Asset Management, and Renaissance Technologies 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 Marathon Partners allocated the biggest weight to US Foods Holding Corp. (NYSE:USFD), around 10.04% of its portfolio. Sachem Head Capital is also relatively very bullish on the stock, dishing out 9.33 percent of its 13F equity portfolio to USFD.

As industrywide interest jumped, some big names have jumped into US Foods Holding Corp. (NYSE:USFD) headfirst. Moore Global Investments, managed by Louis Bacon, initiated the biggest position in US Foods Holding Corp. (NYSE:USFD). Moore Global Investments had $20.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $9.3 million position during the quarter. The other funds with brand new USFD positions are Paul Tudor Jones’s Tudor Investment Corp, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks similar to US Foods Holding Corp. (NYSE:USFD). We will take a look at Amdocs Limited (NASDAQ:DOX), CyrusOne Inc (NASDAQ:CONE), SEI Investments Company (NASDAQ:SEIC), and Mohawk Industries, Inc. (NYSE:MHK). This group of stocks’ market values are closest to USFD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOX 23 621074 -2
CONE 21 314844 3
SEIC 23 390443 1
MHK 32 1522732 -1
Average 24.75 712273 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $1270 million in USFD’s case. Mohawk Industries, Inc. (NYSE:MHK) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks US Foods Holding Corp. (NYSE:USFD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately USFD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on USFD were disappointed as the stock returned -5.9% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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