Hedge Funds Are Buying Sprouts Farmers Market Inc (SFM)

Is Sprouts Farmers Market Inc (NASDAQ:SFM) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Sprouts Farmers Market Inc (NASDAQ:SFM) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. SFM was in 22 hedge funds’ portfolios at the end of the third quarter of 2015. There were 14 hedge funds in our database with SFM holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Two Harbors Investment Corp (NYSE:TWO), Cleco Corporation (NYSE:CNL), and Gulfport Energy Corporation (NASDAQ:GPOR) to gather more data points.

In the eyes of most investors, hedge funds are assumed to be worthless, outdated financial tools of the past. While there are greater than 8000 funds in operation today, Our experts look at the masters of this club, around 700 funds. It is estimated that this group of investors preside over bulk of all hedge funds’ total asset base, and by observing their highest performing investments, Insider Monkey has discovered several investment strategies that have historically exceeded the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, we’re going to take a glance at the latest action surrounding Sprouts Farmers Market Inc (NASDAQ:SFM).

Hedge fund activity in Sprouts Farmers Market Inc (NASDAQ:SFM)

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 57% from the second quarter. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the largest position in Sprouts Farmers Market Inc (NASDAQ:SFM). The fund holds a $74 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Brookside Capital, led by Bain Capital, holding a $59.9 million stake; the fund has 1.8% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, Jim Simons’s Renaissance Technologies and Vivek Mehta and Aaron Husock’s ShearLink Capital.

As one would reasonably expect, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Sprouts Farmers Market Inc (NASDAQ:SFM). By the end of September, the fund had $30.3 million invested in the company. Vivek Mehta and Aaron Husock’s ShearLink Capital also made a $16.8 million investment in the stock during the quarter. The following funds were also among the new SFM investors: Joel Greenblatt’s Gotham Asset Management, Noam Gottesman’s GLG Partners, and Mike Masters’s Masters Capital Management.

Let’s check out hedge fund activity in other stocks similar to Sprouts Farmers Market Inc (NASDAQ:SFM). We will take a look at Two Harbors Investment Corp (NYSE:TWO), Cleco Corporation (NYSE:CNL), Gulfport Energy Corporation (NASDAQ:GPOR), and Cabelas Inc (NYSE:CAB). This group of stocks’ market caps match SFM’s market cap.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $301 million in SFM’s case. Gulfport Energy Corporation (NASDAQ:GPOR) is leading the pack, while Cleco Corporation (NYSE:CNL) is the least popular one with only 16 bullish hedge fund positions. Sprouts Farmers Market Inc (NASDAQ:SFM) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GPOR might be a better candidate to consider a long position.