We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Sprouts Farmers Market Inc (NASDAQ:SFM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Sprouts Farmers Market Inc (NASDAQ:SFM) a healthy stock for your portfolio? The smart money is becoming more confident. The number of bullish hedge fund bets rose by 4 recently. Our calculations also showed that SFM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). SFM was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with SFM holdings at the end of the previous quarter.
At the moment there are a large number of methods stock traders use to analyze their stock investments. A pair of the less utilized methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can beat the broader indices by a healthy amount (see the details here).
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We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the latest hedge fund action regarding Sprouts Farmers Market Inc (NASDAQ:SFM).
What have hedge funds been doing with Sprouts Farmers Market Inc (NASDAQ:SFM)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SFM over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Sprouts Farmers Market Inc (NASDAQ:SFM) was held by Renaissance Technologies, which reported holding $144.7 million worth of stock at the end of September. It was followed by D E Shaw with a $48.7 million position. Other investors bullish on the company included Impax Asset Management, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Sprouts Farmers Market Inc (NASDAQ:SFM), around 0.32% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, designating 0.28 percent of its 13F equity portfolio to SFM.
Now, specific money managers have jumped into Sprouts Farmers Market Inc (NASDAQ:SFM) headfirst. Driehaus Capital, managed by Richard Driehaus, assembled the largest position in Sprouts Farmers Market Inc (NASDAQ:SFM). Driehaus Capital had $1.7 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Jinghua Yan’s TwinBeech Capital, David Andre and Astro Teller’s Cerebellum Capital, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks similar to Sprouts Farmers Market Inc (NASDAQ:SFM). We will take a look at Greif, Inc. (NYSE:GEF), Inter Parfums, Inc. (NASDAQ:IPAR), Kosmos Energy Ltd (NYSE:KOS), and Scorpio Tankers Inc. (NYSE:STNG). This group of stocks’ market valuations are closest to SFM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GEF | 18 | 87008 | 3 |
| IPAR | 15 | 67320 | 1 |
| KOS | 30 | 133090 | 5 |
| STNG | 33 | 233788 | 8 |
| Average | 24 | 130302 | 4.25 |
View table here if you experience formatting issues.
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 $130 million. That figure was $331 million in SFM’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Inter Parfums, Inc. (NASDAQ:IPAR) is the least popular one with only 15 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 calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on SFM as the stock returned -11.4% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
