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Hedge Funds Have Never Been This Bullish On UniFirst Corporation (UNF)

Nina Todic

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

UniFirst Corporation (NYSE:UNF) has experienced an increase in hedge fund sentiment of late. Overall hedge fund sentiment towards the stock has never been higher. Our calculations also showed that UNF isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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.

Clint Carlson, Carlson Capital
Clint Carlson, Carlson Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let's check out the fresh hedge fund action encompassing UniFirst Corporation (NYSE:UNF).

How are hedge funds trading UniFirst Corporation (NYSE:UNF)?

Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in UNF a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with UNF Positions
No of Hedge Funds with UNF Positions

Among these funds, GLG Partners held the most valuable stake in UniFirst Corporation (NYSE:UNF), which was worth $37.2 million at the end of the second quarter. On the second spot was Echo Street Capital Management which amassed $28.3 million worth of shares. Moreover, Royce & Associates, Carlson Capital, and Millennium Management were also bullish on UniFirst Corporation (NYSE:UNF), allocating a large percentage of their portfolios to this stock.

Now, specific money managers were leading the bulls' herd. One Fin Capital Management, managed by David MacKnight, assembled the most outsized position in UniFirst Corporation (NYSE:UNF). One Fin Capital Management had $6.4 million invested in the company at the end of the quarter. Mark Broach's Manatuck Hill Partners also made a $1.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt's Gotham Asset Management, David Harding's Winton Capital Management, and Hoon Kim's Quantinno Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as UniFirst Corporation (NYSE:UNF) but similarly valued. We will take a look at Valley National Bancorp (NASDAQ:VLY), Telephone and Data Systems, Inc. (NYSE:TDS), DNP Select Income Fund Inc. (NYSE:DNP), and KBR, Inc. (NYSE:KBR). This group of stocks' market values are closest to UNF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLY,11,10337,0 TDS,25,393297,2 DNP,1,455,-1 KBR,22,600423,2 Average,14.75,251128,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $251 million. That figure was $183 million in UNF's case. Telephone and Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand DNP Select Income Fund Inc. (NYSE:DNP) is the least popular one with only 1 bullish hedge fund positions. UniFirst Corporation (NYSE:UNF) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on UNF, though not to the same extent, as the stock returned 3.5% during the third quarter and outperformed the market as well.

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

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