“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Sonic Corporation (NASDAQ:SONC) and see how it was affected.
Is Sonic Corporation (NASDAQ:SONC) undervalued? The best stock pickers are becoming more confident. The number of long hedge fund bets advanced by 7 recently. Our calculations also showed that sonc isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s check out the recent hedge fund action encompassing Sonic Corporation (NASDAQ:SONC).
What have hedge funds been doing with Sonic Corporation (NASDAQ:SONC)?
Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 54% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in SONC heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Sonic Corporation (NASDAQ:SONC) was held by Alpine Associates, which reported holding $26 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $15.8 million position. Other investors bullish on the company included Millennium Management, Marshall Wace LLP, and Water Island Capital.
As one would reasonably expect, key hedge funds have been driving this bullishness. Alpine Associates, managed by Robert Emil Zoellner, established the biggest position in Sonic Corporation (NASDAQ:SONC). Alpine Associates had $26 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $13.5 million position during the quarter. The following funds were also among the new SONC investors: John Orrico’s Water Island Capital, Sander Gerber’s Hudson Bay Capital Management, and Mario Gabelli’s GAMCO Investors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sonic Corporation (NASDAQ:SONC) but similarly valued. These stocks are Tri Continental Corporation (NYSE:TY), AK Steel Holding Corporation (NYSE:AKS), Caleres Inc (NYSE:CAL), and Central Puerto S.A. (NYSE:CEPU). All of these stocks’ market caps are similar to SONC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TY | 2 | 5894 | 0 |
| AKS | 20 | 75929 | 0 |
| CAL | 17 | 38670 | 2 |
| CEPU | 9 | 37857 | 1 |
| Average | 12 | 39588 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $99 million in SONC’s case. AK Steel Holding Corporation (NYSE:AKS) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 2 bullish hedge fund positions. Sonic Corporation (NASDAQ:SONC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AKS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
