Is The Kraft Heinz Company (KHC) Going to Burn These Hedge Funds?

In this article we will analyze whether The Kraft Heinz Company (NASDAQ:KHC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

The Kraft Heinz Company (NASDAQ:KHC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds’ portfolios at the end of June. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare KHC to other stocks including Prudential Public Limited Company (NYSE:PUK), Southern Copper Corporation (NYSE:SCCO), and KLA Corporation (NASDAQ:KLAC) to get a better sense of its popularity.

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 S&P 500 ETFs by 79 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 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the key hedge fund action regarding The Kraft Heinz Company (NASDAQ:KHC).

Do Hedge Funds Think KHC Is A Good Stock To Buy Now?

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in KHC over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Kraft Heinz Company (NASDAQ:KHC) was held by Berkshire Hathaway, which reported holding $13279.4 million worth of stock at the end of June. It was followed by Bridgewater Associates with a $86 million position. Other investors bullish on the company included Scion Asset Management, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 4.53% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, designating 2.79 percent of its 13F equity portfolio to KHC.

Due to the fact that The Kraft Heinz Company (NASDAQ:KHC) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely last quarter. At the top of the heap, Simon Sadler’s Segantii Capital cut the biggest investment of the 750 funds followed by Insider Monkey, totaling close to $19.2 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $3.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to The Kraft Heinz Company (NASDAQ:KHC). We will take a look at Prudential Public Limited Company (NYSE:PUK), Southern Copper Corporation (NYSE:SCCO), KLA Corporation (NASDAQ:KLAC), America Movil SAB de CV (NYSE:AMX), América Móvil, S.A.B. de C.V. (NYSE:AMOV), Roper Technologies Inc. (NYSE:ROP), and Palantir Technologies Inc. (NYSE:PLTR). This group of stocks’ market caps are closest to KHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PUK 4 9037 2
SCCO 23 552258 -4
KLAC 45 1374639 5
AMX 13 114474 -2
AMOV 1 256 0
ROP 41 1570401 -1
PLTR 26 1361219 -6
Average 21.9 711755 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $13577 million in KHC’s case. KLA Corporation (NASDAQ:KLAC) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KHC is 57.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately KHC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KHC were disappointed as the stock returned -8.3% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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