Is YUM Stock A Buy or Sell?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 887 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31st holdings, data that is available nowhere else. Should you consider Yum! Brands, Inc. (NYSE:YUM) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is YUM stock a buy? The best stock pickers were becoming less hopeful. The number of long hedge fund positions shrunk by 9 in recent months. Yum! Brands, Inc. (NYSE:YUM) was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 65. Our calculations also showed that YUM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 42 hedge funds in our database with YUM positions at the end of the third quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).

Cliff Asness of AQR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a glance at the new hedge fund action regarding Yum! Brands, Inc. (NYSE:YUM).

Do Hedge Funds Think YUM Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in YUM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Yum! Brands, Inc. (NYSE:YUM) was held by Soroban Capital Partners, which reported holding $473.2 million worth of stock at the end of December. It was followed by Alkeon Capital Management with a $224.9 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 3.59% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, setting aside 2.98 percent of its 13F equity portfolio to YUM.

Seeing as Yum! Brands, Inc. (NYSE:YUM) has experienced falling interest from hedge fund managers, we can see that there is a sect of money managers who were dropping their positions entirely by the end of the fourth quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $69.3 million in stock, and Jack Woodruff’s Candlestick Capital Management was right behind this move, as the fund said goodbye to about $34.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 9 funds by the end of the fourth quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Yum! Brands, Inc. (NYSE:YUM) but similarly valued. These stocks are Carrier Global Corporation (NYSE:CARR), American International Group Inc (NYSE:AIG), Banco Santander (Brasil) SA (NYSE:BSBR), Mizuho Financial Group Inc. (NYSE:MFG), Alcon Inc. (NYSE:ALC), Tencent Music Entertainment Group (NYSE:TME), and Wipro Limited (NYSE:WIT). All of these stocks’ market caps resemble YUM’s market cap.

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As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $857 million. That figure was $1199 million in YUM’s case. Carrier Global Corporation (NYSE:CARR) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 5 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YUM is 41. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and beat the market again by 0.4 percentage points. Unfortunately YUM wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on YUM were disappointed as the stock returned 1.6% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.