Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Hedge fund interest in Texas Roadhouse Inc (NASDAQ:TXRH) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TXRH to other stocks including First Horizon National Corporation (NYSE:FHN), Globus Medical Inc (NYSE:GMED), and MSC Industrial Direct Co Inc (NYSE:MSM) to get a better sense of its popularity.
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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a look at the key hedge fund action encompassing Texas Roadhouse Inc (NASDAQ:TXRH).
Hedge fund activity in Texas Roadhouse Inc (NASDAQ:TXRH)
At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2018. By comparison, 16 hedge funds held shares or bullish call options in TXRH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Texas Roadhouse Inc (NASDAQ:TXRH) was held by Maverick Capital, which reported holding $29.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $16.3 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Arrowstreet Capital.
Since Texas Roadhouse Inc (NASDAQ:TXRH) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that slashed their entire stakes in the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of the 700 funds tracked by Insider Monkey, valued at an estimated $3.9 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dumped about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Texas Roadhouse Inc (NASDAQ:TXRH) but similarly valued. These stocks are First Horizon National Corporation (NYSE:FHN), Globus Medical Inc (NYSE:GMED), MSC Industrial Direct Co Inc (NYSE:MSM), and Wix.Com Ltd (NASDAQ:WIX). This group of stocks’ market values match TXRH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FHN | 19 | 153737 | 0 |
| GMED | 18 | 228985 | -1 |
| MSM | 21 | 169533 | 2 |
| WIX | 27 | 656048 | 3 |
| Average | 21.25 | 302076 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $116 million in TXRH’s case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand Globus Medical Inc (NYSE:GMED) is the least popular one with only 18 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately TXRH wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); TXRH investors were disappointed as the stock returned 1.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
