Hedge Funds Are Selling Sprouts Farmers Market Inc (SFM)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Sprouts Farmers Market Inc (NASDAQ:SFM) based on that data and determine whether they were really smart about the stock.

Is Sprouts Farmers Market Inc (NASDAQ:SFM) the right investment to pursue these days? The best stock pickers were in a bearish mood. The number of bullish hedge fund positions fell by 5 recently. Sprouts Farmers Market Inc (NASDAQ:SFM) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. Our calculations also showed that SFM 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). There were 30 hedge funds in our database with SFM positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are dozens of gauges shareholders employ to size up stocks. Some of the best gauges are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outperform the market by a superb margin (see the details here).

Noam Gottesman of GLG Partners

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. 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. 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 website to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action encompassing Sprouts Farmers Market Inc (NASDAQ:SFM).

How are hedge funds trading Sprouts Farmers Market Inc (NASDAQ:SFM)?

At second quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SFM over the last 20 quarters. 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, Renaissance Technologies was the largest shareholder of Sprouts Farmers Market Inc (NASDAQ:SFM), with a stake worth $246.4 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $52.4 million. GLG Partners, Citadel Investment Group, and Arrowstreet 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 Half Sky Capital allocated the biggest weight to Sprouts Farmers Market Inc (NASDAQ:SFM), around 5.68% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, setting aside 0.65 percent of its 13F equity portfolio to SFM.

Due to the fact that Sprouts Farmers Market Inc (NASDAQ:SFM) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $2.3 million in stock. Mike Vranos’s fund, Ellington, also cut its stock, about $1.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Sprouts Farmers Market Inc (NASDAQ:SFM). We will take a look at Omnicell, Inc. (NASDAQ:OMCL), Werner Enterprises, Inc. (NASDAQ:WERN), KB Home (NYSE:KBH), Bandwidth Inc. (NASDAQ:BAND), Inovalon Holdings Inc (NASDAQ:INOV), Lazard Ltd (NYSE:LAZ), and Proto Labs Inc (NYSE:PRLB). This group of stocks’ market values match SFM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $467 million in SFM’s case. Werner Enterprises, Inc. (NASDAQ:WERN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 13 bullish hedge fund positions. Sprouts Farmers Market Inc (NASDAQ:SFM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SFM is 56.6. 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 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately SFM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SFM were disappointed as the stock returned -18.1% 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.

Disclosure: None. This article was originally published at Insider Monkey.