We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Freshpet Inc (NASDAQ:FRPT) represents 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.
Is Freshpet Inc (NASDAQ:FRPT) a buy right now? Prominent investors are taking a bullish view. The number of bullish hedge fund positions went up by 2 recently. Our calculations also showed that FRPT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Kris Jenner of Rock Springs Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action encompassing Freshpet Inc (NASDAQ:FRPT).
What does smart money think about Freshpet Inc (NASDAQ:FRPT)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the third quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in FRPT a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Freshpet Inc (NASDAQ:FRPT) was held by Rock Springs Capital Management, which reported holding $21 million worth of stock at the end of September. It was followed by Driehaus Capital with a $16.5 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Freshpet Inc (NASDAQ:FRPT), around 4.13% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, designating 2.24 percent of its 13F equity portfolio to FRPT.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Aubrey Capital Management, managed by Andrew Dalrymple and Barry McCorkell, created the most outsized position in Freshpet Inc (NASDAQ:FRPT). Aubrey Capital Management had $4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $1.6 million position during the quarter. The other funds with brand new FRPT positions are Mike Vranos’s Ellington, Donald Sussman’s Paloma Partners, and Hoon Kim’s Quantinno Capital.
Let’s go over hedge fund activity in other stocks similar to Freshpet Inc (NASDAQ:FRPT). These stocks are Sally Beauty Holdings, Inc. (NYSE:SBH), Insmed Incorporated (NASDAQ:INSM), Noah Holdings Limited (NYSE:NOAH), and Terex Corporation (NYSE:TEX). All of these stocks’ market caps match FRPT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBH | 27 | 205932 | 3 |
| INSM | 25 | 489521 | 2 |
| NOAH | 15 | 355694 | -6 |
| TEX | 22 | 291253 | 3 |
| Average | 22.25 | 335600 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $336 million. That figure was $122 million in FRPT’s case. Sally Beauty Holdings, Inc. (NYSE:SBH) is the most popular stock in this table. On the other hand Noah Holdings Limited (NYSE:NOAH) is the least popular one with only 15 bullish hedge fund positions. Freshpet Inc (NASDAQ:FRPT) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on FRPT as the stock returned 12% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
