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Hedge Funds Welcomed Grocery Outlet Holding Corp. (GO) With Open Arms

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Grocery Outlet Holding Corp. (NASDAQ:GO).

Is Grocery Outlet Holding Corp. (NASDAQ:GO) undervalued? The smart money is optimistic. The number of bullish hedge fund positions was 21 lately. Our calculations also showed that GO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 40 percentage points since May 2014 through May 30, 2019 (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.

Phill Gross, Adage Capital Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the key hedge fund action surrounding Grocery Outlet Holding Corp. (NASDAQ:GO).

What does smart money think about Grocery Outlet Holding Corp. (NASDAQ:GO)?

At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21 from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in GO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with GO Positions

Of the funds tracked by Insider Monkey, Bob Peck and Andy Raab’s FPR Partners has the most valuable position in Grocery Outlet Holding Corp. (NASDAQ:GO), worth close to $32.9 million, amounting to 0.8% of its total 13F portfolio. Coming in second is Lee Hicks and Jan Koerner of Park Presidio Capital, with a $32.5 million position; the fund has 4.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. FPR Partners, managed by Bob Peck and Andy Raab, created the most outsized position in Grocery Outlet Holding Corp. (NASDAQ:GO). FPR Partners had $32.9 million invested in the company at the end of the quarter. Lee Hicks and Jan Koerner’s Park Presidio Capital also made a $32.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Grocery Outlet Holding Corp. (NASDAQ:GO) but similarly valued. These stocks are The Goodyear Tire & Rubber Company (NASDAQ:GT), The Chemours Company (NYSE:CC), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), and Olin Corporation (NYSE:OLN). This group of stocks’ market valuations are closest to GO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GT 30 424551 11
CC 28 359067 -2
CSOD 27 661147 -2
OLN 23 604453 -5
Average 27 512305 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $153 million in GO’s case. The Goodyear Tire & Rubber Company (NASDAQ:GT) is the most popular stock in this table. On the other hand Olin Corporation (NYSE:OLN) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Grocery Outlet Holding Corp. (NASDAQ:GO) is even less popular than OLN. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on GO, though not to the same extent, as the stock returned 5.5% during the third quarter and outperformed the market as well.

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

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