Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Dunkin Brands Group Inc (NASDAQ:DNKN).
Is Dunkin Brands Group Inc (NASDAQ:DNKN) a buy, sell, or hold? Prominent investors are in a bullish mood. The number of long hedge fund bets moved up by 3 in recent months. Our calculations also showed that DNKN 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). DNKN was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 28 hedge funds in our database with DNKN positions at the end of the previous quarter.
At the moment there are dozens of formulas shareholders can use to value stocks. Some of the most under-the-radar formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best money managers can trounce the S&P 500 by a solid amount (see the details here).
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind 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 Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DNKN over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Two Sigma Advisors held the most valuable stake in Dunkin Brands Group Inc (NASDAQ:DNKN), which was worth $52.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $45.3 million worth of shares. Citadel Investment Group, Marshall Wace LLP, and Renaissance Technologies 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 Emerson Point Capital allocated the biggest weight to Dunkin Brands Group Inc (NASDAQ:DNKN), around 2.12% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to DNKN.
As aggregate interest increased, specific money managers have jumped into Dunkin Brands Group Inc (NASDAQ:DNKN) headfirst. Winton Capital Management, managed by David Harding, created the most valuable position in Dunkin Brands Group Inc (NASDAQ:DNKN). Winton Capital Management had $9.3 million invested in the company at the end of the quarter. Amir Mokari’s Emerson Point Capital also initiated a $9.2 million position during the quarter. The other funds with brand new DNKN positions are Steven Boyd’s Armistice Capital, Lee Ainslie’s Maverick Capital, and Jinghua Yan’s TwinBeech Capital.
Let’s also examine hedge fund activity in other stocks similar to Dunkin Brands Group Inc (NASDAQ:DNKN). We will take a look at Wix.Com Ltd (NASDAQ:WIX), CACI International Inc (NYSE:CACI), Tallgrass Energy, LP (NYSE:TGE), and Polaris Inc. (NYSE:PII). This group of stocks’ market valuations match DNKN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WIX | 34 | 1072887 | 1 |
| CACI | 24 | 441472 | -2 |
| TGE | 31 | 377431 | 8 |
| PII | 26 | 353558 | -3 |
| Average | 28.75 | 561337 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $272 million in DNKN’s case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand CACI International Inc (NYSE:CACI) is the least popular one with only 24 bullish hedge fund positions. Dunkin Brands Group Inc (NASDAQ:DNKN) 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. 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately DNKN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DNKN were disappointed as the stock returned -31.5% during the same time period 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 so far this year.
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.
