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The Kraft Heinz Company (KHC) vs. Top 20 Hedge Fund Stocks in 2019

Asma UL Husna

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 Kraft Heinz Company (NASDAQ:KHC) and compare its performance to hedge funds' consensus picks in 2019.

The Kraft Heinz Company (NASDAQ:KHC) was in 36 hedge funds' portfolios at the end of September. KHC has seen an increase in enthusiasm from smart money lately. There were 34 hedge funds in our database with KHC holdings at the end of the previous quarter. Our calculations also showed that KHC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26084" align="aligncenter" width="450"] Bruce Berkowitz of Fairholme Capital[/caption]

FAIRHOLME (FAIRX) Bruce Berkowitz

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's analyze the new hedge fund action regarding The Kraft Heinz Company (NASDAQ:KHC).

What have hedge funds been doing with The Kraft Heinz Company (NASDAQ:KHC)?

Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KHC over the last 17 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in The Kraft Heinz Company (NASDAQ:KHC). Berkshire Hathaway has a $9.0966 billion position in the stock, comprising 4.2% of its 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $124.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain John Murphy's Levin Easterly Partners, Benjamin A. Smith's Laurion Capital Management and Steven Boyd's Armistice Capital. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 4.24% of its 13F portfolio. Fairholme Capital is also relatively very bullish on the stock, designating 3.81 percent of its 13F equity portfolio to KHC.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. Armistice Capital, managed by Steven Boyd, assembled the biggest position in The Kraft Heinz Company (NASDAQ:KHC). Armistice Capital had $41.9 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also initiated a $22.7 million position during the quarter. The other funds with brand new KHC positions are Bruce Berkowitz's Fairholme Capital, Renaissance Technologies, and Simon Sadler's Segantii Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as The Kraft Heinz Company (NASDAQ:KHC) but similarly valued. These stocks are NetEase, Inc (NASDAQ:NTES), Xcel Energy Inc (NASDAQ:XEL), Thomson Reuters Corporation (NYSE:TRI), and Lam Research Corporation (NASDAQ:LRCX). All of these stocks' market caps match KHC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTES,30,3513002,-4 XEL,17,573407,-1 TRI,19,360770,2 LRCX,47,2130443,12 Average,28.25,1644406,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1644 million. That figure was $9573 million in KHC's case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 17 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately KHC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KHC were disappointed as the stock returned -21.7% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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