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Is USFD Stock A Buy or Sell?

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Abigail Fisher
·6 min read
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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards US Foods Holding Corp. (NYSE:USFD).

Is USFD stock a buy or sell? US Foods Holding Corp. (NYSE:USFD) was in 44 hedge funds' portfolios at the end of December. The all time high for this statistic is 49. USFD investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. There were 41 hedge funds in our database with USFD holdings at the end of September. Our calculations also showed that USFD isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Scott Ferguson Sachem Head Capital
Scott Ferguson Sachem Head Capital

Scott Ferguson of Sachem Head Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Now we're going to analyze the recent hedge fund action surrounding US Foods Holding Corp. (NYSE:USFD).

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

At fourth quarter's end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in USFD a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Leonard Green & Partners was the largest shareholder of US Foods Holding Corp. (NYSE:USFD), with a stake worth $366.4 million reported as of the end of December. Trailing Leonard Green & Partners was Sachem Head Capital, which amassed a stake valued at $166.6 million. Eminence Capital, Newbrook Capital Advisors, and TOMS Capital 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 Clearfield Capital allocated the biggest weight to US Foods Holding Corp. (NYSE:USFD), around 10.25% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, designating 6.75 percent of its 13F equity portfolio to USFD.

Consequently, key money managers have been driving this bullishness. Newbrook Capital Advisors, managed by Robert Boucai, assembled the largest position in US Foods Holding Corp. (NYSE:USFD). Newbrook Capital Advisors had $81.3 million invested in the company at the end of the quarter. Benjamin Pass's TOMS Capital also initiated a $58.7 million position during the quarter. The other funds with brand new USFD positions are Malcolm Levine's Dendur Capital, Joseph Samuels's Islet Management, and Christopher Pucillo's Solus Alternative Asset Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as US Foods Holding Corp. (NYSE:USFD) but similarly valued. These stocks are Arrow Electronics, Inc. (NYSE:ARW), Allakos Inc. (NASDAQ:ALLK), argenx SE (NASDAQ:ARGX), UGI Corp (NYSE:UGI), Under Armour Inc (NYSE:UA), Pan American Silver Corp. (NASDAQ:PAAS), and Signature Bank (NASDAQ:SBNY). All of these stocks' market caps match USFD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARW,27,764402,-1 ALLK,11,558097,2 ARGX,22,1363063,0 UGI,25,181156,2 UA,47,1451753,-1 PAAS,27,466677,-1 SBNY,28,571010,-7 Average,26.7,765165,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $765 million. That figure was $1243 million in USFD's case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 11 bullish hedge fund positions. US Foods Holding Corp. (NYSE:USFD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for USFD is 80.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on USFD as the stock returned 14.1% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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