At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Yum! Brands, Inc. (NYSE:YUM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Yum! Brands, Inc. (NYSE:YUM) the right pick for your portfolio? Investors who are in the know were buying. The number of bullish hedge fund bets advanced by 6 lately. Yum! Brands, Inc. (NYSE:YUM) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistics is 65. Our calculations also showed that YUM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the eyes of most market participants, hedge funds are seen as worthless, old investment tools of the past. While there are greater than 8000 funds in operation at the moment, Our researchers hone in on the upper echelon of this group, approximately 850 funds. These investment experts shepherd the majority of the smart money’s total asset base, and by watching their inimitable picks, Insider Monkey has determined a few investment strategies that have historically surpassed the market. 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 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Stanley Druckenmiller of Duquesne Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to take a look at the latest hedge fund action surrounding Yum! Brands, Inc. (NYSE:YUM).
How are hedge funds trading Yum! Brands, Inc. (NYSE:YUM)?
At the end of June, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in YUM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Yum! Brands, Inc. (NYSE:YUM), with a stake worth $282.2 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $188.9 million. Melvin Capital Management, Alkeon Capital Management, and Two Sigma Advisors 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 Incline Global Management allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 6.54% of its 13F portfolio. Becker Drapkin Management is also relatively very bullish on the stock, setting aside 3.97 percent of its 13F equity portfolio to YUM.
As one would reasonably expect, key hedge funds have been driving this bullishness. Junto Capital Management, managed by James Parsons, established the largest position in Yum! Brands, Inc. (NYSE:YUM). Junto Capital Management had $90.9 million invested in the company at the end of the quarter. Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners also initiated a $89.7 million position during the quarter. The following funds were also among the new YUM investors: Doug Silverman and Alexander Klabin’s Senator Investment Group, Louis Bacon’s Moore Global Investments, and Stanley Druckenmiller’s Duquesne Capital.
Let’s also examine hedge fund activity in other stocks similar to Yum! Brands, Inc. (NYSE:YUM). We will take a look at Republic Services, Inc. (NYSE:RSG), KKR & Co Inc. (NYSE:KKR), Datadog, Inc. (NASDAQ:DDOG), Hormel Foods Corporation (NYSE:HRL), PACCAR Inc (NASDAQ:PCAR), AFLAC Incorporated (NYSE:AFL), and Suncor Energy Inc. (NYSE:SU). This group of stocks’ market valuations are closest to YUM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RSG | 37 | 821669 | 5 |
| KKR | 45 | 3339623 | -3 |
| DDOG | 57 | 2363237 | 13 |
| HRL | 27 | 440889 | -1 |
| PCAR | 30 | 244385 | -8 |
| AFL | 34 | 588093 | 2 |
| SU | 29 | 845050 | -1 |
| Average | 37 | 1234707 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1235 million. That figure was $1633 million in YUM’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 27 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YUM is 65. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately YUM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on YUM were disappointed as the stock returned 10.8% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
