Do Hedge Funds Love Aramark (ARMK)?

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).

Is Aramark (NYSE:ARMK) worth your attention right now? The best stock pickers were becoming less confident. The number of long hedge fund bets shrunk by 7 recently. Aramark (NYSE:ARMK) was in 29 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 53. Our calculations also showed that ARMK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 36 hedge funds in our database with ARMK positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Now we’re going to check out the recent hedge fund action encompassing Aramark (NYSE:ARMK).

Michael Lowenstein of Kensico Capital

Do Hedge Funds Think ARMK Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. By comparison, 40 hedge funds held shares or bullish call options in ARMK a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Farallon Capital held the most valuable stake in Aramark (NYSE:ARMK), which was worth $601.9 million at the end of the third quarter. On the second spot was Soros Fund Management which amassed $101 million worth of shares. Mantle Ridge LP, Kensico Capital, and Brahman 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 Mantle Ridge LP allocated the biggest weight to Aramark (NYSE:ARMK), around 100% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, earmarking 8.28 percent of its 13F equity portfolio to ARMK.

Because Aramark (NYSE:ARMK) has faced a decline in interest from the smart money, it’s safe to say that there is a sect of hedgies that slashed their entire stakes in the third quarter. At the top of the heap, Mark Kingdon’s Kingdon Capital dropped the largest stake of the 750 funds watched by Insider Monkey, totaling about $14.9 million in stock. Ken Grossman and Glen Schneider’s fund, SG Capital Management, also sold off its stock, about $9.8 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Aramark (NYSE:ARMK). These stocks are MKS Instruments, Inc. (NASDAQ:MKSI), SEI Investments Company (NASDAQ:SEIC), DigitalOcean Holdings, Inc. (NYSE:DOCN), BanColombia S.A. (NYSE:CIB), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), Organon & Co. (NYSE:OGN), and Ternium S.A. (NYSE:TX). All of these stocks’ market caps are similar to ARMK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $1150 million in ARMK’s case. Organon & Co. (NYSE:OGN) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 3 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 55. 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 28.6% in 2021 through November 30th and beat the market again by 5.6 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% since the end of September (through 11/30) 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.