We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Aramark (NYSE:ARMK).
Aramark (NYSE:ARMK) was in 39 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 53. ARMK has seen an increase in enthusiasm from smart money in recent months. There were 33 hedge funds in our database with ARMK positions at the end of the fourth quarter. Our calculations also showed that ARMK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
To the average investor there are a large number of signals stock market investors use to assess stocks. Two of the most useful signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the market by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Noam Gottesman of GLG 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 battery 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. Keeping this in mind let’s take a look at the new hedge fund action encompassing Aramark (NYSE:ARMK).
Do Hedge Funds Think ARMK Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ARMK over the last 23 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Aramark (NYSE:ARMK) was held by Farallon Capital, which reported holding $410.6 million worth of stock at the end of December. It was followed by Kensico Capital with a $104.1 million position. Other investors bullish on the company included Mantle Ridge LP, Soros Fund Management, and GLG Partners. In terms of the portfolio weights assigned to each position Mantle Ridge LP allocated the biggest weight to Aramark (NYSE:ARMK), around 100% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, earmarking 5.14 percent of its 13F equity portfolio to ARMK.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Aramark (NYSE:ARMK). Arrowstreet Capital had $33.9 million invested in the company at the end of the quarter. Mark Kingdon’s Kingdon Capital also initiated a $14.1 million position during the quarter. The following funds were also among the new ARMK investors: Ken Grossman and Glen Schneider’s SG Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Joshua Pearl’s Hickory Lane Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Aramark (NYSE:ARMK) but similarly valued. We will take a look at Inphi Corporation (NYSE:IPHI), Builders FirstSource, Inc. (NASDAQ:BLDR), Centrais Eletricas Brasileiras SA (NYSE:EBR), Levi Strauss & Co. (NYSE:LEVI), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), Upstart Holdings, Inc. (NASDAQ:UPST), and Lamar Advertising Company (NASDAQ:LAMR). This group of stocks’ market valuations are similar to ARMK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPHI | 34 | 1991339 | 0 |
| BLDR | 48 | 1694149 | 11 |
| EBR | 5 | 1208 | -1 |
| LEVI | 19 | 253280 | -2 |
| MLCO | 29 | 728338 | -1 |
| UPST | 13 | 1798914 | -2 |
| LAMR | 35 | 427242 | -1 |
| Average | 26.1 | 984924 | 0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $985 million. That figure was $1063 million in ARMK’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 5 bullish hedge fund positions. Aramark (NYSE:ARMK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARMK is 71.6. 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 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately ARMK wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ARMK were disappointed as the stock returned 2.4% since the end of March (through 6/25) 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.
