It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Smart & Final Stores Inc (NYSE:SFS) .
Is Smart & Final Stores Inc (NYSE:SFS) undervalued? Money managers are indeed in an optimistic mood. The number of bullish hedge fund bets grew by 1 lately. There were 8 hedge funds in our database with SFS positions at the end of the previous quarter. 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 MiMedx Group Inc (NASDAQ:MDXG), Compass Diversified Holdings (NYSE:CODI), and Maiden Holdings, Ltd. (NASDAQ:MHLD) 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, let’s take a gander at the latest action encompassing Smart & Final Stores Inc (NYSE:SFS).
What does the smart money think about Smart & Final Stores Inc (NYSE:SFS)?
Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SFS over the last 5 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Glenn J. Krevlin’s Glenhill Advisors has the biggest position in Smart & Final Stores Inc (NYSE:SFS), worth close to $47.3 million, comprising 2.8% of its total 13F portfolio. The second largest stake is held by Michael A. Price and Amos Meron of Empyrean Capital Partners, with a $14.4 million position. Some other members of the smart money that are bullish comprise George McCabe’s Portolan Capital Management, D E Shaw which is one of the biggest hedge funds in the world and Ken Griffin’s Citadel Investment Group. 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.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Portolan Capital Management initiated the biggest position in Smart & Final Stores Inc (NYSE:SFS). Portolan Capital Management had $2.7 million invested in the company at the end of the quarter. Mike Vranos’ Ellington also made a $0.2 million investment in the stock during the quarter. The other funds with brand new SFS positions are Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Smart & Final Stores Inc (NYSE:SFS) but similarly valued. These stocks are MiMedx Group Inc (NASDAQ:MDXG), Compass Diversified Holdings (NYSE:CODI), Maiden Holdings, Ltd. (NASDAQ:MHLD), and Zhaopin Ltd (ADR) (NYSE:ZPIN). This group of stocks’ market valuations are closest to SFS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDXG | 7 | 13927 | -3 |
| CODI | 6 | 7828 | -1 |
| MHLD | 13 | 41771 | 3 |
| ZPIN | 4 | 8590 | -2 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $69 million in SFS’s case. Maiden Holdings, Ltd. (NASDAQ:MHLD) is the most popular stock in this table. On the other hand Zhaopin Ltd (ADR) (NYSE:ZPIN) is the least popular one with only 4 bullish hedge fund positions. Smart & Final Stores Inc (NYSE:SFS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MHLD might be a better candidate to consider taking a long position in.
Disclosure: None
