The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Waitr Holdings Inc. (NASDAQ:WTRH) and find out how it is affected by hedge funds’ moves.
Is Waitr Holdings Inc. (NASDAQ:WTRH) a buy, sell, or hold? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions were cut by 2 recently. Our calculations also showed that wtrh isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a glance at the fresh hedge fund action surrounding Waitr Holdings Inc. (NASDAQ:WTRH).
How have hedgies been trading Waitr Holdings Inc. (NASDAQ:WTRH)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in WTRH a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Leucadia National was the largest shareholder of Waitr Holdings Inc. (NASDAQ:WTRH), with a stake worth $43.4 million reported as of the end of December. Trailing Leucadia National was Pelham Capital, which amassed a stake valued at $39.6 million. Park West Asset Management, ThornTree Capital Partners, and Corvex Capital were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Leucadia National).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Waitr Holdings Inc. (NASDAQ:WTRH) but similarly valued. We will take a look at Guaranty Bancorp (NASDAQ:GBNK), Capstead Mortgage Corporation (NYSE:CMO), Essential Properties Realty Trust, Inc. (NYSE:EPRT), and Byline Bancorp, Inc. (NYSE:BY). This group of stocks’ market values resemble WTRH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GBNK | 11 | 57905 | -1 |
| CMO | 11 | 52323 | 4 |
| EPRT | 13 | 104932 | -3 |
| BY | 6 | 20476 | 2 |
| Average | 10.25 | 58909 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $167 million in WTRH’s case. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the most popular stock in this table. On the other hand Byline Bancorp, Inc. (NYSE:BY) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Waitr Holdings Inc. (NASDAQ:WTRH) is more popular among hedge funds. 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 WTRH wasn’t nearly as popular as these 15 stock and hedge funds that were betting on WTRH were disappointed as the stock returned -1.8% 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.