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Is US Foods Holding Corp. (USFD) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think US Foods Holding Corp. (NYSE:USFD) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

US Foods Holding Corp. (NYSE:USFD) has experienced a decrease in activity from the world’s largest hedge funds recently. USFD was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. There were 37 hedge funds in our database with USFD positions at the end of the previous quarter. Our calculations also showed that USFD 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.

If you’d ask most stock holders, hedge funds are perceived as underperforming, outdated investment tools of the past. While there are greater than 8000 funds in operation at the moment, Our researchers look at the moguls of this group, around 850 funds. These hedge fund managers manage the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their best stock picks, Insider Monkey has found numerous investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Scott Ferguson Sachem Head Capital

Scott Ferguson of Sachem Head Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 recent hedge fund action surrounding US Foods Holding Corp. (NYSE:USFD).

How have hedgies been trading US Foods Holding Corp. (NYSE:USFD)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in USFD over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Eminence Capital held the most valuable stake in US Foods Holding Corp. (NYSE:USFD), which was worth $192.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $56.4 million worth of shares. Sachem Head Capital, Two Sigma Advisors, and Polar 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 Sonic Capital allocated the biggest weight to US Foods Holding Corp. (NYSE:USFD), around 7.67% of its 13F portfolio. Sachem Head Capital is also relatively very bullish on the stock, dishing out 4.13 percent of its 13F equity portfolio to USFD.

Seeing as US Foods Holding Corp. (NYSE:USFD) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few funds that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital dumped the largest position of the 750 funds followed by Insider Monkey, worth an estimated $46.3 million in stock, and Jack Woodruff’s Candlestick Capital Management was right behind this move, as the fund sold off about $43.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as US Foods Holding Corp. (NYSE:USFD) but similarly valued. We will take a look at Equity Commonwealth (NYSE:EQC), Cogent Communications Holdings Inc. (NASDAQ:CCOI), Tetra Tech, Inc. (NASDAQ:TTEK), and Plains All American Pipeline, L.P. (NYSE:PAA). This group of stocks’ market valuations match USFD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQC 20 176264 -2
CCOI 27 454195 3
TTEK 21 115608 -2
PAA 8 44850 -4
Average 19 197729 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $507 million in USFD’s case. Cogent Communications Holdings Inc. (NASDAQ:CCOI) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 8 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 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 and still beat the market by 13.2 percentage points. Unfortunately USFD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on USFD were disappointed as the stock returned 8.1% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.