In this article we will check out the progression of hedge fund sentiment towards The Simply Good Foods Company (NASDAQ:SMPL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
The Simply Good Foods Company (NASDAQ:SMPL) has seen a decrease in hedge fund sentiment of late. SMPL was in 19 hedge funds' portfolios at the end of March. There were 34 hedge funds in our database with SMPL holdings at the end of the previous quarter. Our calculations also showed that SMPL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Mark Kingdon of Kingdon CapitalMark Kingdon[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to go over the key hedge fund action regarding The Simply Good Foods Company (NASDAQ:SMPL).
How have hedgies been trading The Simply Good Foods Company (NASDAQ:SMPL)?
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -44% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SMPL over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lomas Capital Management held the most valuable stake in The Simply Good Foods Company (NASDAQ:SMPL), which was worth $45.1 million at the end of the third quarter. On the second spot was Parian Global Management which amassed $20.6 million worth of shares. Millennium Management, Point72 Asset Management, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Parian Global Management allocated the biggest weight to The Simply Good Foods Company (NASDAQ:SMPL), around 7.24% of its 13F portfolio. Lomas Capital Management is also relatively very bullish on the stock, dishing out 4.49 percent of its 13F equity portfolio to SMPL.
Seeing as The Simply Good Foods Company (NASDAQ:SMPL) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, James Woodson Davis's Woodson Capital Management dumped the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $37.1 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund said goodbye to about $11.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 15 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks similar to The Simply Good Foods Company (NASDAQ:SMPL). We will take a look at SVMK Inc. (NASDAQ:SVMK), Greif, Inc. (NYSE:GEF), Prestige Consumer Healthcare Inc. (NYSE:PBH), and Denali Therapeutics Inc. (NASDAQ:DNLI). This group of stocks' market valuations match SMPL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SVMK,29,211973,-2 GEF,17,64067,-1 PBH,17,86125,3 DNLI,14,70980,5 Average,19.25,108286,1.25 [/table]
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $152 million in SMPL's case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 14 bullish hedge fund positions. The Simply Good Foods Company (NASDAQ:SMPL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately SMPL wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SMPL investors were disappointed as the stock returned -8.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
