Is Dean Foods Co (DF) a Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Dean Foods Co (NYSE:DF), and what that likely means for the prospects of the company and its stock.

Dean Foods Co (NYSE:DF) shareholders have witnessed a slight decrease in activity from the world’s largest hedge funds during the third quarter, as the number of funds tracked by Insider Monkey long the stock inched down by one to 20. 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 Party City Holdco Inc (NYSE:PRTY), Werner Enterprises, Inc. (NASDAQ:WERN), and Cambrex Corporation (NYSE:CBM) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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With all of this in mind, we’re going to go over the latest action regarding Dean Foods Co (NYSE:DF).

What does the smart money think about Dean Foods Co (NYSE:DF)?

Heading into the fourth quarter of 2016, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, which represents a decline of 5% from the end of the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in DF at the beginning of this year. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the biggest position in Dean Foods Co (NYSE:DF), worth close to $62.1 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Ken Griffin of Citadel Investment Group, with a $23 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Glenn Russell Dubin’s Highbridge Capital Management, Jim Simons’ Renaissance Technologies and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Dean Foods Co (NYSE:DF) has weathered bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that elected to cut their full holdings by the end of the third quarter. Interestingly, David Harding’s Winton Capital Management cashed in the biggest position of the “upper crust” of funds studied by Insider Monkey, totaling close to $7.5 million in stock, and Neil Chriss’s Hutchin Hill Capital was right behind this move, as the fund cut about $3.4 million worth of shares.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dean Foods Co (NYSE:DF) but similarly valued. We will take a look at Party City Holdco Inc (NYSE:PRTY), Werner Enterprises, Inc. (NASDAQ:WERN), Cambrex Corporation (NYSE:CBM), and Insperity Inc (NYSE:NSP). All of these stocks’ market caps are closest to DF’s market cap.

As you can see these stocks had an average of 15 funds with long positions and the average amount invested in these stocks was $90 million. That figure was $152 million in DF’s case. Cambrex Corporation (NYSE:CBM) is the most popular stock in this table. On the other hand Party City Holdco Inc (NYSE:PRTY) is the least popular one with only nine bullish hedge fund positions. Compared to these stocks Dean Foods Co (NYSE:DF) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.