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Should You Avoid Pinnacle Foods Inc (PF)?

Asma UL Husna

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Pinnacle Foods Inc (NYSE:PF) investors should be aware of a decrease in support from the world's most elite money managers of late. Our calculations also showed that PF isn't among the 30 most popular stocks among hedge funds.

In the financial world there are many signals stock market investors put to use to assess stocks. A duo of the best signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite money managers can outperform the broader indices by a very impressive margin (see the details here).

Barry Rosenstein JANA PARTNERS

We're going to take a gander at the recent hedge fund action regarding Pinnacle Foods Inc (NYSE:PF).

Hedge fund activity in Pinnacle Foods Inc (NYSE:PF)

At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in PF heading into this year. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PF_dec2018

More specifically, JANA Partners was the largest shareholder of Pinnacle Foods Inc (NYSE:PF), with a stake worth $632.1 million reported as of the end of September. Trailing JANA Partners was Millennium Management, which amassed a stake valued at $250.2 million. Magnetar Capital, Carlson Capital, and Alpine Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Pinnacle Foods Inc (NYSE:PF) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of funds who were dropping their full holdings heading into Q3. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $71.3 million in call options. Isaac Corre's fund, Governors Lane, also said goodbye to its call options, about $59.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Pinnacle Foods Inc (NYSE:PF). We will take a look at Bio-Techne Corporation (NASDAQ:TECH), Encompass Health Corporation (NYSE:EHC), News Corp (NASDAQ:NWSA), and Lamar Advertising Company (REIT) (NASDAQ:LAMR). This group of stocks' market valuations are similar to PF's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TECH,18,316289,1 EHC,25,401049,3 NWSA,30,712120,5 LAMR,19,310683,1 Average,23,435035,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $435 million. That figure was $2.33 billion in PF's case. News Corp (NASDAQ:NWSA) is the most popular stock in this table. On the other hand Bio-Techne Corporation (NASDAQ:TECH) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Pinnacle Foods Inc (NYSE:PF) 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.

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