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Do Hedge Funds Love UniFirst Corp (UNF)?

Abigail Fisher
·6 mins read

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards UniFirst Corp (NYSE:UNF) and determine whether hedge funds skillfully traded this stock.

UniFirst Corp (NYSE:UNF) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. UNF investors should pay attention to an increase in support from the world's most elite money managers of late. There were 17 hedge funds in our database with UNF holdings at the end of March. Our calculations also showed that UNF isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a glance at the new hedge fund action encompassing UniFirst Corp (NYSE:UNF).

What does smart money think about UniFirst Corp (NYSE:UNF)?

Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the first quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in UNF 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.

Among these funds, Carlson Capital held the most valuable stake in UniFirst Corp (NYSE:UNF), which was worth $23.1 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $18.5 million worth of shares. Yost Capital Management, AQR Capital Management, and Millennium Management 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 Yost Capital Management allocated the biggest weight to UniFirst Corp (NYSE:UNF), around 9.29% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, setting aside 0.64 percent of its 13F equity portfolio to UNF.

As aggregate interest increased, specific money managers were leading the bulls' herd. Yost Capital Management, managed by Carson Yost, initiated the biggest position in UniFirst Corp (NYSE:UNF). Yost Capital Management had $10.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $5.1 million position during the quarter. The other funds with new positions in the stock are Thyra Zerhusen's Fairpointe Capital, Benjamin A. Smith's Laurion Capital Management, and Peter Muller's PDT Partners.

Let's go over hedge fund activity in other stocks similar to UniFirst Corp (NYSE:UNF). These stocks are Unum Group (NYSE:UNM), Marriott Vacations Worldwide Corporation (NYSE:VAC), South State Corporation (NASDAQ:SSB), Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR), Freshpet Inc (NASDAQ:FRPT), Spire Inc. (NYSE:SR), and Glacier Bancorp, Inc. (NASDAQ:GBCI). This group of stocks' market caps resemble UNF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNM,22,210972,-3 VAC,24,381087,-1 SSB,24,79638,12 ASR,11,69729,7 FRPT,21,128659,-3 SR,18,40448,5 GBCI,20,61522,8 Average,20,138865,3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $86 million in UNF's case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) is the least popular one with only 11 bullish hedge fund positions. UniFirst Corp (NYSE:UNF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UNF is 61.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately UNF wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UNF investors were disappointed as the stock returned 6% in the third 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.

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

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