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Was The Smart Money Right About SYSCO Corporation (SYY)?

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·6 min read
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In this article we will check out the progression of hedge fund sentiment towards SYSCO Corporation (NYSE:SYY) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

SYSCO Corporation (NYSE:SYY) was in 40 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 42. SYY investors should be aware of an increase in hedge fund interest of late. There were 33 hedge funds in our database with SYY holdings at the end of September. Our calculations also showed that SYY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

TRIAN PARTNERS
TRIAN PARTNERS

Nelson Peltz of Trian Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's review the new hedge fund action regarding SYSCO Corporation (NYSE:SYY).

Do Hedge Funds Think SYY Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in SYY a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in SYSCO Corporation (NYSE:SYY) was held by Trian Partners, which reported holding $1530 million worth of stock at the end of December. It was followed by Yacktman Asset Management with a $440 million position. Other investors bullish on the company included Holocene Advisors, Appaloosa Management LP, and Adage Capital Management. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to SYSCO Corporation (NYSE:SYY), around 22.64% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 5.44 percent of its 13F equity portfolio to SYY.

Consequently, some big names were leading the bulls' herd. Holocene Advisors, managed by Brandon Haley, established the most valuable position in SYSCO Corporation (NYSE:SYY). Holocene Advisors had $97.6 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $30.8 million position during the quarter. The other funds with brand new SYY positions are Ken Griffin's Citadel Investment Group, Paul Marshall and Ian Wace's Marshall Wace LLP, and Mark R. Freeman's Socorro Asset Management.

Let's now review hedge fund activity in other stocks similar to SYSCO Corporation (NYSE:SYY). We will take a look at Freeport-McMoRan Inc. (NYSE:FCX), Liberty Broadband Corp (NASDAQ:LBRDA), Biogen Inc. (NASDAQ:BIIB), The Trade Desk, Inc. (NASDAQ:TTD), The Bank of New York Mellon Corporation (NYSE:BK), Microchip Technology Incorporated (NASDAQ:MCHP), and Cintas Corporation (NASDAQ:CTAS). This group of stocks' market valuations are similar to SYY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCX,61,2664729,4 LBRDA,26,908617,1 BIIB,63,2752928,4 TTD,35,1195309,12 BK,47,4689872,-1 MCHP,45,961474,10 CTAS,36,746276,-2 Average,44.7,1988458,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $1988 million. That figure was $2513 million in SYY's case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Liberty Broadband Corp (NASDAQ:LBRDA) is the least popular one with only 26 bullish hedge fund positions. SYSCO Corporation (NYSE:SYY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYY is 57.5. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on SYY as the stock returned 15.4% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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

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