Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Kroger Co. (NYSE:KR).
Is The Kroger Co. (NYSE:KR) a buy, sell, or hold? The best stock pickers are in an optimistic mood. The number of bullish hedge fund bets improved by 6 lately. Our calculations also showed that KR isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the key hedge fund action surrounding The Kroger Co. (NYSE:KR).
How have hedgies been trading The Kroger Co. (NYSE:KR)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in KR a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in The Kroger Co. (NYSE:KR), which was worth $224.4 million at the end of the second quarter. On the second spot was Bridgewater Associates which amassed $39.2 million worth of shares. Moreover, Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group were also bullish on The Kroger Co. (NYSE:KR), allocating a large percentage of their portfolios to this stock.
Consequently, some big names were breaking ground themselves. Renaissance Technologies, initiated the most valuable position in The Kroger Co. (NYSE:KR). Renaissance Technologies had $35.1 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also initiated a $21.7 million position during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson's Adage Capital Management, Israel Englander's Millennium Management, and Joel Greenblatt's Gotham Asset Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Kroger Co. (NYSE:KR) but similarly valued. We will take a look at Keysight Technologies Inc (NYSE:KEYS), Alexandria Real Estate Equities Inc (NYSE:ARE), Yum China Holdings, Inc. (NYSE:YUMC), and Loews Corporation (NYSE:L). All of these stocks' market caps are closest to KR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KEYS,39,855014,2 ARE,27,484902,10 YUMC,28,448229,-2 L,21,258588,1 Average,28.75,511683,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $404 million in KR's case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Loews Corporation (NYSE:L) is the least popular one with only 21 bullish hedge fund positions. The Kroger Co. (NYSE:KR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on KR as the stock returned 19.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.