Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Denny’s Corporation (NASDAQ:DENN).
Is DENN a good stock to buy now? Denny’s Corporation (NASDAQ:DENN) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 23. DENN has experienced a decrease in hedge fund interest lately. There were 23 hedge funds in our database with DENN holdings at the end of June. Our calculations also showed that DENN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are numerous tools stock market investors have at their disposal to size up stocks. A pair of the less utilized tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite money managers can outpace their index-focused peers by a solid amount (see the details here).
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a look at the fresh hedge fund action surrounding Denny’s Corporation (NASDAQ:DENN).
Do Hedge Funds Think DENN Is A Good Stock To Buy Now?
At the end of September, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DENN over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Denny’s Corporation (NASDAQ:DENN), with a stake worth $23.9 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $13.7 million. Millennium Management, Two Sigma Advisors, and GAMCO Investors 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 PDT Partners allocated the biggest weight to Denny’s Corporation (NASDAQ:DENN), around 0.16% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to DENN.
Seeing as Denny’s Corporation (NASDAQ:DENN) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Greg Eisner’s Engineers Gate Manager dumped the largest position of all the hedgies tracked by Insider Monkey, valued at close to $1.5 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. We will take a look at Ebix Inc (NASDAQ:EBIX), Lumber Liquidators Holdings Inc (NYSE:LL), G-III Apparel Group, Ltd. (NASDAQ:GIII), Albireo Pharma, Inc. (NASDAQ:ALBO), Transportadora de Gas del Sur SA (NYSE:TGS), Wabash National Corporation (NYSE:WNC), and The Andersons, Inc. (NASDAQ:ANDE). This group of stocks’ market valuations match DENN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EBIX | 13 | 50750 | -4 |
| LL | 14 | 61499 | 5 |
| GIII | 16 | 45316 | 6 |
| ALBO | 22 | 220205 | 10 |
| TGS | 6 | 9871 | 1 |
| WNC | 18 | 58904 | 3 |
| ANDE | 15 | 25045 | 4 |
| Average | 14.9 | 67370 | 3.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $65 million in DENN’s case. Albireo Pharma, Inc. (NASDAQ:ALBO) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 6 bullish hedge fund positions. Denny’s Corporation (NASDAQ:DENN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DENN is 71.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on DENN as the stock returned 38% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Denny's Corp (NASDAQ:DENN)
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Disclosure: None. This article was originally published at Insider Monkey.
