The market is responding positively to SUPERVALU INC. (NYSE:SVU)’s announcement that it is considering spinning off Save-A-Lot into a separate publicly-traded company, as its stock is up to $8.69 per share earlier, up by 18.14% in early-afternoon trading. According to the firm, if it decides to split off Save-A-Lot, the two resulting independent firms will be able to better focus on growing their respective businesses. Save-A-Lot, a discount grocery chain, has over 1,300 locations, 430 of which are company-owned and 900 of which are franchises. In total the chain accounted for approximately 26% of SuperValu’s revenue in the first quarter. The news that SUPERVALU INC. (NYSE:SVU) is considering a spinoff of Save-A-Lot comes as SuperValu beat top and bottom line expectations in the company’s fiscal second quarter that ended on June 20. The firm reported net income attributable to SuperValu of $61 million or $0.23 per share, up by 42% year-on-year, on net sales of $5.41 billion, up by 2.7% compared to the year-ago quarter. Wall Street was expecting earnings of $0.20 per share on sales of $5.39 billion.
The SUPERVALU INC. (NYSE:SVU) spike today and its beat for the second quarter appears to be contrary to the bearishness of hedge funds in the first quarter. While it may seem that hedge funds were bullish in the maiden quarter of the year, as at the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, up from 29 in the fourth quarter, the total value of their holdings went down by 8.57% quarter-on-quarter, to about $580 million, despite the stock soaring by nearly 20% from January 2 to March 31. Funds were certainly right in that sense, as shares crumbled by 30% in the second quarter.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 123.1% over the last 34 months, which is more than 66.5 percentage points higher than the returns of the S&P500 ETF (SPY) (see more details).
Insider Monkey also tracks insider trades to deduce the sentiment of insiders in their companies. However, there have been no purchases or sales of shares by insiders of SuperValu this year.
Let’s look at how SuperValu has been traded by hedge funds in the first quarter on the next page.
What does the smart money think about SUPERVALU INC. (NYSE:SVU)?
According to hedge fund intelligence website Insider Monkey, Barry Rosenstein‘s JANA Partners had the number one position in SUPERVALU INC. (NYSE:SVU), worth close to $143.8 million, held in 12.36 million shares, and corresponding to 0.8% of its total 13F portfolio. On JANA Partners’ heels was Conan Laughlin of North Tide Capital, with an $81.4 million position comprised of 7 million shares; 6.2% of its 13F portfolio was allocated to the company. Other hedgies that were bullish consist of Joel Greenblatt’s Gotham Asset Management, David E. Shaw’s D.E. Shaw & Co., L.P., and Cliff Asness’ AQR Capital Management.
Gabriel Plotkin’s Melvin Capital Management initiated the biggest position in SUPERVALU INC. (NYSE:SVU) in the first quarter, buying 1.5 million shares worth about $17.4 million. However, Tom Sandell’s Sandell Asset Management sold off its entire stake, worth about $31.69 million and made up of about 3.27 million shares. David Keidan’s Buckingham Capital Management also sold all of its 2.67 million shares worth about $25.86 million in the first quarter.
While hedge funds were negative on SUPERVALU in the first quarter, we feel the far lower point of entry from then now makes the stock a more attractive purchase and suspect hedge fund sentiment will have shifted also. In light of the spin-off announcement, we believe it’s a good time to buy SUPERVALU.
Disclosure: None
