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 (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 analyze whether Wingstop Inc (NASDAQ:WING) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Wingstop Inc (NASDAQ:WING) investors should pay attention to a decrease in hedge fund sentiment in recent months. Our calculations also showed that WING 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.
David E. Shaw of D.E. Shaw
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. Keeping this in mind we’re going to go over the key hedge fund action encompassing Wingstop Inc (NASDAQ:WING).
How are hedge funds trading Wingstop Inc (NASDAQ:WING)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WING over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Wingstop Inc (NASDAQ:WING) was held by Renaissance Technologies, which reported holding $108.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $23.2 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Wingstop Inc (NASDAQ:WING), around 3.93% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.61 percent of its 13F equity portfolio to WING.
Judging by the fact that Wingstop Inc (NASDAQ:WING) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Steven Boyd’s Armistice Capital dumped the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $12.9 million in stock. Philippe Laffont’s fund, Coatue Management, also said goodbye to its stock, about $5.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Wingstop Inc (NASDAQ:WING). We will take a look at First Midwest Bancorp Inc (NASDAQ:FMBI), Sunoco LP (NYSE:SUN), Frontline Ltd (NYSE:FRO), and First Financial Bancorp (NASDAQ:FFBC). This group of stocks’ market caps match WING’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FMBI | 11 | 62652 | -5 |
| SUN | 6 | 14008 | 3 |
| FRO | 17 | 115018 | 3 |
| FFBC | 5 | 6404 | -2 |
| Average | 9.75 | 49521 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $242 million in WING’s case. Frontline Ltd (NYSE:FRO) is the most popular stock in this table. On the other hand First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Wingstop Inc (NASDAQ:WING) is more popular among hedge funds. 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 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on WING as the stock returned -14% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
