There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze El Pollo LoCo Holdings Inc (NASDAQ:LOCO).
El Pollo LoCo Holdings Inc (NASDAQ:LOCO) investors should pay attention to an increase in hedge fund interest in recent months. LOCO was in 14 hedge funds’ portfolios at the end of the third quarter of 2018. There were 9 hedge funds in our database with LOCO positions at the end of the previous quarter. Our calculations also showed that LOCO isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to view the new hedge fund action regarding El Pollo LoCo Holdings Inc (NASDAQ:LOCO).
How are hedge funds trading El Pollo LoCo Holdings Inc (NASDAQ:LOCO)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in LOCO over the last 13 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in El Pollo LoCo Holdings Inc (NASDAQ:LOCO), which was worth $11.6 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $1.7 million worth of shares. Moreover, Millennium Management, Renaissance Technologies, and PEAK6 Capital Management were also bullish on El Pollo LoCo Holdings Inc (NASDAQ:LOCO), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key money managers have been driving this bullishness. Blue Mountain Capital, managed by Andrew Feldstein and Stephen Siderow, established the most outsized position in El Pollo LoCo Holdings Inc (NASDAQ:LOCO). Blue Mountain Capital had $0.6 million invested in the company at the end of the quarter. Frank Slattery’s Symmetry Peak Management also initiated a $0.4 million position during the quarter. The following funds were also among the new LOCO investors: Philippe Laffont’s Coatue Management, Mike Vranos’s Ellington, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as El Pollo LoCo Holdings Inc (NASDAQ:LOCO) but similarly valued. These stocks are New Senior Investment Group Inc (NYSE:SNR), Invacare Corporation (NYSE:IVC), Cowen Inc. (NASDAQ:COWN), and Ellington Financial LLC (NYSE:EFC). All of these stocks’ market caps resemble LOCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNR | 16 | 46711 | 1 |
| IVC | 16 | 88440 | -3 |
| COWN | 15 | 107524 | 3 |
| EFC | 3 | 17897 | 0 |
| Average | 12.5 | 65143 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $19 million in LOCO’s case. New Senior Investment Group Inc (NYSE:SNR) is the most popular stock in this table. On the other hand Ellington Financial LLC (NYSE:EFC) is the least popular one with only 3 bullish hedge fund positions. El Pollo LoCo Holdings Inc (NASDAQ:LOCO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SNR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
