Is Dunkin Brands Group Inc (NASDAQ:DNKN) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Dunkin Brands Group Inc (NASDAQ:DNKN) undervalued? Hedge funds are becoming hopeful. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that DNKN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). DNKN was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with DNKN positions at the end of the previous quarter.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action encompassing Dunkin Brands Group Inc (NASDAQ:DNKN).
Hedge fund activity in Dunkin Brands Group Inc (NASDAQ:DNKN)
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DNKN over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Paul Marshall and Ian Wace’s Marshall Wace has the biggest position in Dunkin Brands Group Inc (NASDAQ:DNKN), worth close to $53.8 million, accounting for 0.4% of its total 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $51.9 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism encompass Renaissance Technologies, Dmitry Balyasny’s Balyasny Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Marshall Wace allocated the biggest weight to Dunkin Brands Group Inc (NASDAQ:DNKN), around 0.42% of its 13F portfolio. Noked Capital is also relatively very bullish on the stock, earmarking 0.36 percent of its 13F equity portfolio to DNKN.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Renaissance Technologies, established the biggest position in Dunkin Brands Group Inc (NASDAQ:DNKN). Renaissance Technologies had $19.8 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also initiated a $1.3 million position during the quarter. The other funds with new positions in the stock are Robert Pohly’s Samlyn Capital, Donald Sussman’s Paloma Partners, and Bruce Kovner’s Caxton Associates.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dunkin Brands Group Inc (NASDAQ:DNKN) but similarly valued. These stocks are GCI Liberty, Inc. (NASDAQ:GLIBA), Columbia Sportswear Company (NASDAQ:COLM), Alliance Data Systems Corporation (NYSE:ADS), and Robert Half International Inc. (NYSE:RHI). This group of stocks’ market valuations resemble DNKN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GLIBA | 34 | 2003406 | -4 |
| COLM | 26 | 155276 | -1 |
| ADS | 35 | 1242255 | 1 |
| RHI | 21 | 577040 | -5 |
| Average | 29 | 994494 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $994 million. That figure was $194 million in DNKN’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Robert Half International Inc. (NYSE:RHI) is the least popular one with only 21 bullish hedge fund positions. Dunkin Brands Group Inc (NASDAQ:DNKN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DNKN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DNKN investors were disappointed as the stock returned -3.5% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
