Is Whole Foods Market, Inc. (WFM) A Good Stock To Buy?

Like everyone else, successful investors make mistakes. Some of their top consensus picks, such as Valeant and SunEdison, have not done well during the last 12 months due to various reasons. Nevertheless, the data show successful investors’ consensus picks have done well on average. The top 30 mid-cap stocks (market caps between $1 billion and $10 billion) among hedge funds delivered an average return of 18% during the last four quarters. S&P 500 Index returned only 7.6% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what successful funds and billionaire investors think before doing extensive research on a stock. In this article, we take a closer look at Whole Foods Market, Inc. (NASDAQ:WFM) from the perspective of those successful funds.

Whole Foods Market, Inc. (NASDAQ:WFM) was in 28 hedge funds’ portfolios at the end of the third quarter of 2016. WFM investors should be aware of an increase in enthusiasm from smart money recently. There were 26 hedge funds in our database with WFM holdings 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 Foot Locker, Inc. (NYSE:FL), Sealed Air Corp (NYSE:SEE), and Ihs Markit Ltd. (NASDAQ:INFO) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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How are hedge funds trading Whole Foods Market, Inc. (NASDAQ:WFM)?

Heading into the fourth quarter of 2016, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by 8% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards WFM over the last 5 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Robert Joseph Caruso’s Select Equity Group has the largest position in Whole Foods Market, Inc. (NASDAQ:WFM), worth close to $275.2 million, amounting to 2.4% of its total 13F portfolio. The second largest stake is held by Anand Parekh of Alyeska Investment Group, with a $123 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism include Ken Griffin’s Citadel Investment Group, Steve Cohen’s Point72 Asset Management and Cliff Asness’ AQR Capital 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.

Now, key hedge funds were breaking ground themselves. Point72 Asset Management created the most outsized position in Whole Foods Market, Inc. (NASDAQ:WFM). Point72 Asset Management had $48.9 million invested in the company at the end of the quarter. Citadel Investment Group also made a $18.2 million investment in the stock during the quarter. The following funds were also among the new WFM investors: Millennium Management, one of the 10 largest hedge funds in the world, Mario Gabelli’s GAMCO Investors, and Daniel S. Och’s OZ Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Whole Foods Market, Inc. (NASDAQ:WFM) but similarly valued. These stocks are Foot Locker, Inc. (NYSE:FL), Sealed Air Corp (NYSE:SEE), Ihs Markit Ltd. (NASDAQ:INFO), and Arthur J. Gallagher & Co. (NYSE:AJG). All of these stocks’ market caps match WFM’s market cap.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1000 million. That figure was $768 million in WFM’s case. Sealed Air Corp (NYSE:SEE) is the most popular stock in this table. On the other hand Arthur J. Gallagher & Co. (NYSE:AJG) is the least popular one with only 12 bullish hedge fund positions. Whole Foods Market, Inc. (NASDAQ:WFM) 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 SEE might be a better candidate to consider taking a long position in.

Disclosure: None