Hedge Funds Are Selling US Foods Holding Corp. (USFD)

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding US Foods Holding Corp. (NYSE:USFD).

US Foods Holding Corp. (NYSE:USFD) investors should pay attention to a decrease in enthusiasm from smart money of late. US Foods Holding Corp. (NYSE:USFD) was in 35 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 49. There were 40 hedge funds in our database with USFD positions at the end of the first quarter. Our calculations also showed that USFD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. 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. Now let’s take a look at the key hedge fund action encompassing US Foods Holding Corp. (NYSE:USFD).

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

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards USFD over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Leonard Green’s Leonard Green & Partners has the most valuable position in US Foods Holding Corp. (NYSE:USFD), worth close to $268.5 million, corresponding to 2.1% of its total 13F portfolio. The second most bullish fund manager is Gabriel Plotkin of Melvin Capital Management, with a $230.2 million position; 1.3% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Scott Ferguson’s Sachem Head Capital, and Ryan Frick and Oliver Evans’s Dorsal Capital Management. In terms of the portfolio weights assigned to each position Solus Alternative Asset Management allocated the biggest weight to US Foods Holding Corp. (NYSE:USFD), around 11.11% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, designating 7.59 percent of its 13F equity portfolio to USFD.

Seeing as US Foods Holding Corp. (NYSE:USFD) has faced falling interest from the smart money, we can see that there is a sect of hedgies that decided to sell off their positions entirely by the end of the second quarter. Interestingly, David Rosen’s Rubric Capital Management dropped the largest position of all the hedgies monitored by Insider Monkey, totaling close to $42.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $37.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as US Foods Holding Corp. (NYSE:USFD) but similarly valued. We will take a look at Genpact Limited (NYSE:G), TFI International Inc. (NYSE:TFII), Under Armour Inc (NYSE:UA), Huntington Ingalls Industries Inc (NYSE:HII), Jefferies Financial Group Inc. (NYSE:JEF), Advanced Drainage Systems Inc. (NYSE:WMS), and Arrow Electronics, Inc. (NYSE:ARW). All of these stocks’ market caps match USFD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $1399 million in USFD’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand TFI International Inc. (NYSE:TFII) is the least popular one with only 13 bullish hedge fund positions. US Foods Holding Corp. (NYSE:USFD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for USFD is 50.4. 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 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately USFD wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on USFD were disappointed as the stock returned -2.6% since the end of June (through 10/11) 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.

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