We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Denny’s Corporation (NASDAQ:DENN).
Denny’s Corporation (NASDAQ:DENN) has experienced a decrease in hedge fund interest recently. Our calculations also showed that DENN isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the recent hedge fund action encompassing Denny’s Corporation (NASDAQ:DENN).
How have hedgies been trading Denny’s Corporation (NASDAQ:DENN)?
At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in DENN 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 adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Denny’s Corporation (NASDAQ:DENN), with a stake worth $69.6 million reported as of the end of March. Trailing Renaissance Technologies was Cardinal Capital, which amassed a stake valued at $69.3 million. Arrowstreet Capital, Millennium Management, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Denny’s Corporation (NASDAQ:DENN) has experienced bearish sentiment from hedge fund managers, we can see that there were a few fund managers who sold off their positions entirely heading into Q3. Intriguingly, Paul Tudor Jones’s Tudor Investment Corp sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $0.3 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also said goodbye to its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. These stocks are Avaya Holdings Corp. (NYSE:AVYA), National HealthCare Corporation (NYSE:NHC), Orion Engineered Carbons SA (NYSE:OEC), and Sandy Spring Bancorp Inc. (NASDAQ:SASR). This group of stocks’ market values are closest to DENN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVYA | 42 | 309525 | 2 |
| NHC | 9 | 58048 | 0 |
| OEC | 17 | 269481 | -6 |
| SASR | 15 | 83501 | 1 |
| Average | 20.75 | 180139 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $197 million in DENN’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand National HealthCare Corporation (NYSE:NHC) is the least popular one with only 9 bullish hedge fund positions. Denny’s Corporation (NASDAQ:DENN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on DENN as the stock returned 10.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
