Hedge Funds Were Selling Grocery Outlet Holding Corp. (GO) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Grocery Outlet Holding Corp. (NASDAQ:GO).

Grocery Outlet Holding Corp. (NASDAQ:GO) was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. GO investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 15 hedge funds in our database with GO holdings at the end of the previous quarter. Our calculations also showed that GO 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).

In today’s marketplace there are several formulas market participants employ to grade stocks. A duo of the most useful formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can beat the broader indices by a significant amount (see the details here).

Brad Farber Atika Capital

Brad Farber of Atika 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 take a gander at the recent hedge fund action surrounding Grocery Outlet Holding Corp. (NASDAQ:GO).

Hedge fund activity in Grocery Outlet Holding Corp. (NASDAQ:GO)

Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GO 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, Third Point was the largest shareholder of Grocery Outlet Holding Corp. (NASDAQ:GO), with a stake worth $37.3 million reported as of the end of September. Trailing Third Point was Alyeska Investment Group, which amassed a stake valued at $11.9 million. Atika Capital, Citadel Investment Group, and Park Presidio Capital 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 Atika Capital allocated the biggest weight to Grocery Outlet Holding Corp. (NASDAQ:GO), around 1.53% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to GO.

Since Grocery Outlet Holding Corp. (NASDAQ:GO) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the largest investment of the 750 funds tracked by Insider Monkey, worth close to $8.8 million in stock, and Amir Mokari’s Emerson Point Capital was right behind this move, as the fund said goodbye to about $2.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Grocery Outlet Holding Corp. (NASDAQ:GO) but similarly valued. We will take a look at Guangshen Railway Co. Ltd (NYSE:GSH), Diodes Incorporated (NASDAQ:DIOD), Navistar International Corp (NYSE:NAV), and Washington Federal Inc. (NASDAQ:WAFD). All of these stocks’ market caps match GO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GSH 1 4453 -2
DIOD 18 79913 -5
NAV 27 1172047 3
WAFD 19 94991 2
Average 16.25 337851 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $79 million in GO’s case. Navistar International Corp (NYSE:NAV) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 1 bullish hedge fund positions. Grocery Outlet Holding Corp. (NASDAQ:GO) is not the least popular stock in this group but hedge fund interest is still below average. 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on GO as the stock returned 3.1% during the same time period and outperformed the market by an even larger margin.
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.