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Is Dean Foods Company (DF) Going to Burn These Hedge Funds?

Nina Todic

Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 2.6% in the first two months of the second quarter. Ten out of 11 industry groups in the S&P 500 Index lost value in May. The average return of a randomly picked stock in the index was even worse (-3.6%). This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 20 most popular S&P 500 stocks among hedge funds not only generated positive returns but also outperformed the index by about 3 percentage points through May 30th. In this article, we will take a look at what hedge funds think about Dean Foods Company (NYSE:DF).

Dean Foods Company (NYSE:DF) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of the first quarter of 2019. At the end of this article we will also compare DF to other stocks including UFP Technologies, Inc. (NASDAQ:UFPT), Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), and Telenav Inc (NASDAQ:TNAV) to get a better sense of its popularity.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]

Noam Gottesman GLG Partners

We're going to take a peek at the recent hedge fund action encompassing Dean Foods Company (NYSE:DF).

What does the smart money think about Dean Foods Company (NYSE:DF)?

Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in DF a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with DF Positions

According to Insider Monkey's hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Dean Foods Company (NYSE:DF). Citadel Investment Group has a $8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Citadel Investment Group's heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $4.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of John Overdeck and David Siegel's Two Sigma Advisors, D. E. Shaw's D E Shaw and Noam Gottesman's GLG Partners.

Due to the fact that Dean Foods Company (NYSE:DF) has experienced falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedgies that elected to cut their entire stakes by the end of the third quarter. Interestingly, Israel Englander's Millennium Management sold off the biggest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $0.6 million in stock, and Boaz Weinstein's Saba Capital was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Dean Foods Company (NYSE:DF). We will take a look at UFP Technologies, Inc. (NASDAQ:UFPT), Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), Telenav Inc (NASDAQ:TNAV), and Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). This group of stocks' market caps are similar to DF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFPT,9,69220,1 CLMT,4,10140,-1 TNAV,10,75691,1 AOSL,11,42571,0 Average,8.5,49406,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $19 million in DF's case. Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is the most popular stock in this table. On the other hand Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Dean Foods Company (NYSE:DF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately DF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DF were disappointed as the stock returned -63.4% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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

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