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Hedge Funds Were Getting Burned By US Foods Holding Corp. (USFD) Before The Coronavirus

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 US Foods Holding Corp. (NYSE:USFD).

Is US Foods Holding Corp. (NYSE:USFD) a buy, sell, or hold? The smart money is in a bearish mood. The number of bullish hedge fund positions fell by 9 lately. Our calculations also showed that USFD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). USFD was in 37 hedge funds’ portfolios at the end of December. There were 46 hedge funds in our database with USFD holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Scott Ferguson Sachem Head Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when 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 analyze the recent hedge fund action encompassing US Foods Holding Corp. (NYSE:USFD).

What does smart money think about US Foods Holding Corp. (NYSE:USFD)?

At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in USFD a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eminence Capital, managed by Ricky Sandler, holds the biggest position in US Foods Holding Corp. (NYSE:USFD). Eminence Capital has a $250.6 million position in the stock, comprising 2.8% of its 13F portfolio. The second largest stake is held by D E Shaw, managed by D. E. Shaw, which holds a $147 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Scott Ferguson’s Sachem Head Capital, Noam Gottesman’s GLG Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to US Foods Holding Corp. (NYSE:USFD), around 9.54% of its 13F portfolio. Marathon Partners is also relatively very bullish on the stock, dishing out 7.49 percent of its 13F equity portfolio to USFD.

Judging by the fact that US Foods Holding Corp. (NYSE:USFD) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that elected to cut their entire stakes heading into Q4. Interestingly, Brandon Haley’s Holocene Advisors said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, worth about $51.4 million in stock, and Matthew Iorio’s White Elm Capital was right behind this move, as the fund cut about $12.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 9 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as US Foods Holding Corp. (NYSE:USFD) but similarly valued. These stocks are Carlisle Companies, Inc. (NYSE:CSL), Iron Mountain Incorporated (NYSE:IRM), AEGON N.V. (NYSE:AEG), and Fortune Brands Home & Security Inc (NYSE:FBHS). 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
CSL 26 406012 -8
IRM 17 42090 1
AEG 6 29963 -1
FBHS 34 561867 0
Average 20.75 259983 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $1279 million in USFD’s case. Fortune Brands Home & Security Inc (NYSE:FBHS) is the most popular stock in this table. On the other hand AEGON N.V. (NYSE:AEG) is the least popular one with only 6 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 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 -64.9% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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