Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about The Cheesecake Factory Incorporated (NASDAQ:CAKE) in this article.
The Cheesecake Factory Incorporated (NASDAQ:CAKE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds’ portfolios at the end of June. 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 Focus Financial Partners Inc. (NASDAQ:FOCS), iRhythm Technologies, Inc. (NASDAQ:IRTC), and Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) to gather more data points. Our calculations also showed that CAKE isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the recent hedge fund action encompassing The Cheesecake Factory Incorporated (NASDAQ:CAKE).
What have hedge funds been doing with The Cheesecake Factory Incorporated (NASDAQ:CAKE)?
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in CAKE a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in The Cheesecake Factory Incorporated (NASDAQ:CAKE), which was worth $39.8 million at the end of the second quarter. On the second spot was Millennium Management which amassed $32.3 million worth of shares. Moreover, GAMCO Investors, Point72 Asset Management, and Maverick Capital were also bullish on The Cheesecake Factory Incorporated (NASDAQ:CAKE), allocating a large percentage of their portfolios to this stock.
Since The Cheesecake Factory Incorporated (NASDAQ:CAKE) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that elected to cut their entire stakes heading into Q3. Interestingly, Sander Gerber’s Hudson Bay Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, worth an estimated $1.8 million in stock. Mike Vranos’s fund, Ellington, also dropped its stock, about $1.6 million worth. These transactions 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 Cheesecake Factory Incorporated (NASDAQ:CAKE). These stocks are Focus Financial Partners Inc. (NASDAQ:FOCS), iRhythm Technologies, Inc. (NASDAQ:IRTC), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), and Alexander’s, Inc. (NYSE:ALX). This group of stocks’ market caps resemble CAKE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FOCS | 9 | 38089 | 4 |
| IRTC | 16 | 295163 | -8 |
| MDRX | 18 | 219405 | -3 |
| ALX | 4 | 72690 | 0 |
| Average | 11.75 | 156337 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $192 million in CAKE’s case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand Alexander’s, Inc. (NYSE:ALX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks The Cheesecake Factory Incorporated (NASDAQ:CAKE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CAKE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CAKE were disappointed as the stock returned -3.8% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
