Is Aramark (ARMK) A Good Stock To Buy?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Aramark (NYSE:ARMK) based on those filings.

Aramark (NYSE:ARMK) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that ARMK 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.

At the moment there are many gauges market participants have at their disposal to appraise their stock investments. A couple of the most useful gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the best money managers can trounce the S&P 500 by a superb amount (see the details here).

George Soros of Soros Fund Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. Now let’s take a gander at the latest hedge fund action surrounding Aramark (NYSE:ARMK).

What have hedge funds been doing with Aramark (NYSE:ARMK)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ARMK over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Kensico Capital was the largest shareholder of Aramark (NYSE:ARMK), with a stake worth $140.5 million reported as of the end of September. Trailing Kensico Capital was Permian Investment Partners, which amassed a stake valued at $83.3 million. Brahman Capital, Eminence Capital, and Mantle Ridge LP 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 Mantle Ridge LP allocated the biggest weight to Aramark (NYSE:ARMK), around 100% of its 13F portfolio. Permian Investment Partners is also relatively very bullish on the stock, designating 19.87 percent of its 13F equity portfolio to ARMK.

Judging by the fact that Aramark (NYSE:ARMK) has witnessed falling interest from hedge fund managers, we can see that there is a sect of money managers that slashed their full holdings by the end of the first quarter. Interestingly, Daniel Sundheim’s D1 Capital Partners dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth about $156.2 million in stock. Seth Rosen’s fund, Nitorum Capital, also sold off its stock, about $74.9 million worth. These moves are interesting, as total hedge fund interest fell by 7 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Aramark (NYSE:ARMK). These stocks are Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), BorgWarner Inc. (NYSE:BWA), Canopy Growth Corporation (NYSE:CGC), and Wayfair Inc (NYSE:W). All of these stocks’ market caps are closest to ARMK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBS 8 218391 -4
BWA 30 482313 3
CGC 10 30232 -4
W 34 1043243 1
Average 20.5 443545 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $596 million in ARMK’s case. Wayfair Inc (NYSE:W) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is the least popular one with only 8 bullish hedge fund positions. Aramark (NYSE:ARMK) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ARMK as the stock returned 30.2% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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