Is US Foods Holding Corp. (USFD) A Good Stock To Buy?

Unlock stock picks and a broker-level newsfeed that powers Wall Street.

Abigail Fisher

Updated Sun, Dec 9, 2018, 5:11 PM

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: US Foods Holding Corp. (NYSE:USFD).

Is US Foods Holding Corp. (NYSE:USFD) worth your attention right now? The best stock pickers are getting less bullish. The number of bullish hedge fund positions fell by 6 lately. Our calculations also showed that USFD isn't among the 30 most popular stocks among hedge funds.

In the eyes of most investors, hedge funds are viewed as worthless, old financial vehicles of years past. While there are over 8,000 funds with their doors open at present, Our researchers hone in on the elite of this group, about 700 funds. It is estimated that this group of investors orchestrate most of all hedge funds' total capital, and by following their matchless equity investments, Insider Monkey has spotted several investment strategies that have historically outrun the broader indices. Insider Monkey's flagship hedge fund strategy outrun the S&P 500 index by 6 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

We're going to review the fresh hedge fund action surrounding US Foods Holding Corp. (NYSE:USFD).

What does the smart money think about US Foods Holding Corp. (NYSE:USFD)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards USFD over the last 13 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Eminence Capital was the largest shareholder of US Foods Holding Corp. (NYSE:USFD), with a stake worth $250.1 million reported as of the end of September. Trailing Eminence Capital was Sachem Head Capital, which amassed a stake valued at $132.5 million. Carlson Capital, Nokota Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Since US Foods Holding Corp. (NYSE:USFD) has experienced falling interest from the smart money, we can see that there were a few money managers that decided to sell off their positions entirely heading into Q3. Intriguingly, Alex Duran and Scott Hendrickson's Permian Investment Partners said goodbye to the largest stake of the 700 funds watched by Insider Monkey, totaling close to $126.2 million in stock. John Lykouretzos's fund, Hoplite Capital Management, also said goodbye to its stock, about $97 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q3.

Let's now review hedge fund activity in other stocks similar to US Foods Holding Corp. (NYSE:USFD). These stocks are Cullen/Frost Bankers, Inc. (NYSE:CFR), Erie Indemnity Company (NASDAQ:ERIE), Fair Isaac Corporation (NYSE:FICO), and Watsco Inc (NYSE:WSO). All of these stocks' market caps are closest to USFD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFR,18,169671,-3 ERIE,14,73849,4 FICO,21,344358,-1 WSO,17,163129,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $1.18 billion in USFD's case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks US Foods Holding Corp. (NYSE:USFD) 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.

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

Related Content