After posting strong first quarter fiscal 2015 financial results, Kroger Co (NYSE:KR) is once again ready to impress its investors with a stock split and an increase in its quarterly dividend. The CEO of Kroger Co (NYSE:KR), Rodney McMullen, said, “The stock split will increase the accessibility of our shares and liquidity in the trading of our shares…”
This is fifth time in the history of the retailer it announced a stock split with the most recent one in 1999. Kroger said that its common shares of record on May 23, 2015 would serve as the basis of split under which, its shares would increase to 962 million from existing 481 million shares. In addition to the split, the company increased its quarterly dividend by 13.5% to a pre-split figure of $0.21. The company announced its first quarter 2015 financial results on June 18, 2015 with identical supermarket sales growth of 5.7% excluding fuel and net income of $619 million, which is higher than the prior year net income of $557 million. Further, Kroger announced a share repurchase program involving share buybacks worth $500 million. With these things under consideration, question arises that whether Kroger is a buy after these announcements. Analyzing the value of a stock is slightly more than considering the current market conditions and it helps to find out insider activity and hedge fund sentiment regarding the stock.
The shares of Kroger Co (NYSE:KR) gained 13.9% year-to-date along with a bullish hedge fund sentiment. At the end of the first quarter of 2015, 39 hedge funds tracked by Insider Monkey had positions in the retailer with net investments worth $994.9 million. These figures are much better than the previous quarter’s 36 hedge fund investors investing $752.36 million in the company. In terms of insider activity, M Kevin Dougherty, Group Vice President at Kroger, made the largest insider sale in the last six months with 45,000 shares on March 6, 2015 followed by the sale of 42,026 shares by McMullen on April 24, 2015.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
With a bullish hedge fund sentiment for the shares of Kroger Co (NYSE:KR), let us find out some detailed hedge fund transactions carried out during the first quarter.
Of the funds tracked by Insider Monkey, Steven Richman’s East Side Capital (RR Partners) had the biggest position in The Kroger Co. (NYSE:KR), worth close to $362.4 million along with ownership of 4.73 million shares, corresponding to 11.1% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $136.3 million position with 1.78 million shares; the fund has 0.3% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of John Burbank’s Passport Capital, Phill Gross and Robert Atchinson’s Adage Capital Management and Robert B. Gillam’s McKinley Capital Management.
Now, specific money managers were breaking ground themselves. Passport Capital, managed by John Burbank, created the biggest new position in The Kroger Co. (NYSE:KR) during the first quarter. Passport Capital had 64.4 million invested in the company at the end of the quarter with 839,643 shares. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $30.9 million investment in the stock during the quarter along with an ownership of 402,484 shares of the company. The other funds with brand new KR positions are Gabriel Plotkin’s Melvin Capital Management, David E. Shaw’s D E Shaw, and Joel Greenblatt’s Gotham Asset Management.
Hedge fund managers have a bullish sentiment for the shares of Kroger and the company has displayed strong financial footing for the past several quarters. We believe the stock is likely to outperform in the near future.
Disclosure: None
