Here’s the Smart Money’s Take On J Alexanders Holdings Inc (JAX)

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards J Alexanders Holdings Inc (NYSE:JAX), and what that likely means for the prospects of the company and its stock.

J Alexanders Holdings Inc (NYSE:JAX) was in 14 hedge funds’ portfolios at the end of the third quarter of 2016. JAX investors should be aware of a decrease in support from the world’s most successful money managers recently. There were 15 hedge funds in our database with JAX positions at the end of the previous quarter. At the end of this article we will also compare JAX to other stocks including Kopin Corporation (NASDAQ:KOPN), Zagg Inc (NASDAQ:ZAGG), and Cutera, Inc. (NASDAQ:CUTR) to get a better sense of its popularity.

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What have hedge funds been doing with J Alexanders Holdings Inc (NYSE:JAX)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 7% drop from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in JAX heading into this year, while 18 held those positions at the end of Q3 2015. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ricky Sandler’s Eminence Capital has the biggest position in J Alexanders Holdings Inc (NYSE:JAX), worth close to $13 million. The second largest stake is held by Mario Cibelli of Marathon Partners, with a $7.3 million position; 3.6% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions consist of Terence Hogan’s Addison Clark Management, Seth Rosen’s Nitorum Capital, and Michael M. Rothenberg’s Moab Capital Partners. We should note that two of these hedge funds (Nitorum Capital and Moab Capital Partners) are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in the stock as being unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified JAX as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as J Alexanders Holdings Inc (NYSE:JAX) but similarly valued. We will take a look at Kopin Corporation (NASDAQ:KOPN), Zagg Inc (NASDAQ:ZAGG), Cutera, Inc. (NASDAQ:CUTR), and CAI International Inc (NYSE:CAI). This group of stocks’ market caps are closest to JAX’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $34 million in JAX’s case. Cutera, Inc. (NASDAQ:CUTR) is the most popular stock in this table. On the other hand Kopin Corporation (NASDAQ:KOPN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks J Alexanders Holdings Inc (NYSE:JAX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None