How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding United Natural Foods, Inc. (NYSE:UNFI).
Is UNFI a good stock to buy now? Hedge fund interest in United Natural Foods, Inc. (NYSE:UNFI) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that UNFI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare UNFI to other stocks including Boot Barn Holdings Inc (NYSE:BOOT), Embraer SA (NYSE:ERJ), and Monarch Casino & Resort, Inc. (NASDAQ:MCRI) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most investors, hedge funds are seen as unimportant, old financial tools of years past. While there are more than 8000 funds with their doors open at present, We look at the elite of this club, around 850 funds. It is estimated that this group of investors handle the lion’s share of the smart money’s total asset base, and by tracking their highest performing stock picks, Insider Monkey has identified numerous investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let’s go over the latest hedge fund action regarding United Natural Foods, Inc. (NYSE:UNFI).
Do Hedge Funds Think UNFI Is A Good Stock To Buy Now?
At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in UNFI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in United Natural Foods, Inc. (NYSE:UNFI) was held by Arrowstreet Capital, which reported holding $14.6 million worth of stock at the end of September. It was followed by Intrinsic Edge Capital with a $9.8 million position. Other investors bullish on the company included Valueworks LLC, GMT Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Valueworks LLC allocated the biggest weight to United Natural Foods, Inc. (NYSE:UNFI), around 7.36% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.67 percent of its 13F equity portfolio to UNFI.
Seeing as United Natural Foods, Inc. (NYSE:UNFI) has witnessed declining sentiment from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their entire stakes heading into Q4. Interestingly, Lee Ainslie’s Maverick Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $2 million in stock. Qing Li’s fund, Sciencast Management, also sold off its stock, about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to United Natural Foods, Inc. (NYSE:UNFI). These stocks are Boot Barn Holdings Inc (NYSE:BOOT), Embraer SA (NYSE:ERJ), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Alexander & Baldwin Inc (NYSE:ALEX), GreenSky, Inc. (NASDAQ:GSKY), Associated Capital Group, Inc. (NYSE:AC), and Endurance International Group Holdings Inc (NASDAQ:EIGI). All of these stocks’ market caps resemble UNFI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $60 million in UNFI’s case. Endurance International Group Holdings Inc (NASDAQ:EIGI) is the most popular stock in this table. On the other hand Associated Capital Group, Inc. (NYSE:AC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks United Natural Foods, Inc. (NYSE:UNFI) is more popular among hedge funds. Our overall hedge fund sentiment score for UNFI is 81.3. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Unfortunately UNFI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNFI were disappointed as the stock returned 0.5% since the end of the third quarter (through 12/14) 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 2020.
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Disclosure: None. This article was originally published at Insider Monkey.