Is The Chefs Warehouse, Inc (CHEF) Going to Burn These Hedge Funds?

Does The Chefs Warehouse, Inc (NASDAQ:CHEF) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

The Chefs Warehouse, Inc (NASDAQ:CHEF) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Liberty Oilfield Services Inc. (NYSE:LBRT), Criteo SA (NASDAQ:CRTO), and Oxford Industries, Inc. (NYSE:OXM) to gather more data points. Our calculations also showed that CHEF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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 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.

Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the latest hedge fund action surrounding The Chefs Warehouse, Inc (NASDAQ:CHEF).

How have hedgies been trading The Chefs Warehouse, Inc (NASDAQ:CHEF)?

At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHEF over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of The Chefs Warehouse, Inc (NASDAQ:CHEF), with a stake worth $54.7 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $1.3 million. PDT Partners, AQR Capital Management, and Winton Capital Management 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 Weld Capital Management allocated the biggest weight to The Chefs Warehouse, Inc (NASDAQ:CHEF), around 0.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to CHEF.

Seeing as The Chefs Warehouse, Inc (NASDAQ:CHEF) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the largest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $5.5 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund cut about $1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to The Chefs Warehouse, Inc (NASDAQ:CHEF). These stocks are Liberty Oilfield Services Inc. (NYSE:LBRT), Criteo SA (NASDAQ:CRTO), Oxford Industries, Inc. (NYSE:OXM), and Summit Hotel Properties Inc (NYSE:INN). This group of stocks’ market values are closest to CHEF’s market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBRT,12,36429,5 CRTO,12,170445,3 OXM,14,75460,1 INN,15,31264,3 Average,13.25,78400,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $59 million in CHEF’s case. Summit Hotel Properties Inc (NYSE:INN) is the most popular stock in this table. On the other hand Liberty Oilfield Services Inc. (NYSE:LBRT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks The Chefs Warehouse, Inc (NASDAQ:CHEF) is even less popular than LBRT. Hedge funds dodged a bullet by taking a bearish stance towards CHEF. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHEF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CHEF investors were disappointed as the stock returned -11.8% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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