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Is SYY A Good Stock To Buy According To Hedge Funds?

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Debasis Saha
·6 min read
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In this article you are going to find out whether hedge funds think SYSCO Corporation (NYSE:SYY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is SYY a good stock to buy? SYSCO Corporation (NYSE:SYY) investors should be aware of a decrease in hedge fund interest in recent months. SYSCO Corporation (NYSE:SYY) was in 33 hedge funds' portfolios at the end of September. The all time high for this statistic is 42. There were 42 hedge funds in our database with SYY positions at the end of the second quarter. Our calculations also showed that SYY isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

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, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind we're going to check out the key hedge fund action encompassing SYSCO Corporation (NYSE:SYY).

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

At the end of September, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in SYY 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.

Is SYY A Good Stock To Buy?
Is SYY A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Trian Partners, managed by Nelson Peltz, holds the biggest position in SYSCO Corporation (NYSE:SYY). Trian Partners has a $1.5169 billion position in the stock, comprising 25.1% of its 13F portfolio. On Trian Partners's heels is Donald Yacktman of Yacktman Asset Management, with a $374.1 million position; the fund has 5.5% of its 13F portfolio invested in the stock. Other peers that are bullish encompass David Tepper's Appaloosa Management LP, Phill Gross and Robert Atchinson's Adage Capital Management and John Osterweis's Osterweis Capital Management. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to SYSCO Corporation (NYSE:SYY), around 25.07% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 5.55 percent of its 13F equity portfolio to SYY.

Since SYSCO Corporation (NYSE:SYY) has experienced a decline in interest from the smart money, we can see that there exists a select few funds that decided to sell off their positions entirely heading into Q4. It's worth mentioning that Ken Griffin's Citadel Investment Group sold off the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $31.6 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $21.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 9 funds heading into Q4.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SYSCO Corporation (NYSE:SYY) but similarly valued. We will take a look at Cummins Inc. (NYSE:CMI), IHS Markit Ltd. (NASDAQ:INFO), Walgreens Boots Alliance Inc (NASDAQ:WBA), Agilent Technologies Inc. (NYSE:A), Datadog, Inc. (NASDAQ:DDOG), Banco Santander, S.A. (NYSE:SAN), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks' market values are similar to SYY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMI,49,673230,11 INFO,44,1283750,0 WBA,33,285947,-12 A,39,3221001,1 DDOG,42,2604703,-15 SAN,14,232246,-2 WEC,22,237741,-8 Average,34.7,1219803,-3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $1220 million. That figure was $2199 million in SYY's case. Cummins Inc. (NYSE:CMI) is the most popular stock in this table. On the other hand Banco Santander, S.A. (NYSE:SAN) is the least popular one with only 14 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 46.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on SYY as the stock returned 17% since the end of the third quarter (through 12/18) 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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