SUPERVALU INC. (SVU): Are Hedge Funds Right About This Stock?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is SUPERVALU INC. (NYSE:SVU) going to take off soon? Hedge funds are betting on the stock. The number of bullish hedge fund bets advanced by 2 lately. 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 Deckers Outdoor Corp (NASDAQ:DECK), Anixter International Inc. (NYSE:AXE), and Superior Energy Services, Inc. (NYSE:SPN) to gather more data points.

If you’d ask most shareholders, hedge funds are viewed as slow, old investment tools of the past. While there are greater than 8000 funds with their doors open at the moment, We choose to focus on the top tier of this group, around 700 funds. These investment experts orchestrate bulk of the hedge fund industry’s total asset base, and by keeping track of their unrivaled equity investments, Insider Monkey has come up with various investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s take a glance at the new action surrounding SUPERVALU INC. (NYSE:SVU).

How are hedge funds trading SUPERVALU INC. (NYSE:SVU)?

Heading into Q4, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the second quarter. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Conan Laughlin’s North Tide Capital has the biggest position in SUPERVALU INC. (NYSE:SVU), worth close to $107.7 million, accounting for 9.4% of its total 13F portfolio. Sitting at the No. 2 spot is Gotham Asset Management, led by Joel Greenblatt, holding a $51.6 million position; 0.5% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions include Cliff Asness’s AQR Capital Management, Peter S. Park’s Park West Asset Management, and John Overdeck and David Siegel’s Two Sigma Advisors.

Consequently, key hedge funds have been driving this bullishness. Glenhill Advisors, managed by Glenn J. Krevlin, assembled the largest position in SUPERVALU INC. (NYSE:SVU). Glenhill Advisors had $14.3 million invested in the company at the end of the quarter. Don Morgan’s Brigade Capital also made a $9.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons’ Renaissance Technologies, Steve Cohen’s Point72 Asset Management, and Malcolm Fairbairn’s Ascend Capital.

Let’s now review hedge fund activity in other stocks similar to SUPERVALU INC. (NYSE:SVU). We will take a look at Deckers Outdoor Corp (NASDAQ:DECK), Anixter International Inc. (NYSE:AXE), Superior Energy Services, Inc. (NYSE:SPN), and Meredith Corporation (NYSE:MDP). This group of stocks’ market values are similar to SVU’s market value.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $391 million. That figure was $397 million in SVU’s case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand Meredith Corporation (NYSE:MDP) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks SUPERVALU INC. (NYSE:SVU) 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.