Was Warren Buffett Right About The Kroger Co. (KR)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded The Kroger Co. (NYSE:KR) and determine whether the smart money was really smart about this stock.

Is The Kroger Co. (NYSE:KR) the right pick for your portfolio? The best stock pickers were taking an optimistic view. The number of bullish hedge fund bets inched up by 12 lately. Our calculations also showed that KR 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.

In the financial world there are dozens of formulas market participants can use to analyze their holdings. Two of the less utilized formulas are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outclass the market by a solid amount (see the details here).

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold 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 recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding The Kroger Co. (NYSE:KR).

How are hedge funds trading The Kroger Co. (NYSE:KR)?

At the end of the first quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in KR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of The Kroger Co. (NYSE:KR), with a stake worth $570.5 million reported as of the end of September. Trailing Berkshire Hathaway was Renaissance Technologies, which amassed a stake valued at $390.6 million. AQR Capital Management, Balyasny Asset Management, and Citadel Investment Group 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 Game Creek Capital allocated the biggest weight to The Kroger Co. (NYSE:KR), around 7.13% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, dishing out 1.3 percent of its 13F equity portfolio to KR.

As industrywide interest jumped, specific money managers were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, initiated the most valuable position in The Kroger Co. (NYSE:KR). Holocene Advisors had $39.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $35.2 million position during the quarter. The following funds were also among the new KR investors: Ken Heebner’s Capital Growth Management, George McCabe’s Portolan Capital Management, and James Dondero’s Highland Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to The Kroger Co. (NYSE:KR). We will take a look at Phillips 66 (NYSE:PSX), NXP Semiconductors NV (NASDAQ:NXPI), Veeva Systems Inc (NYSE:VEEV), and SYSCO Corporation (NYSE:SYY). This group of stocks’ market values match KR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSX 43 420207 -3
NXPI 52 1234255 -28
VEEV 33 352902 -11
SYY 35 1783679 7
Average 40.75 947761 -8.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $948 million. That figure was $1582 million in KR’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Veeva Systems Inc (NYSE:VEEV) is the least popular one with only 33 bullish hedge fund positions. The Kroger Co. (NYSE:KR) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately KR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KR were disappointed as the stock returned 12.9% 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.