Is Hostess Brands, Inc. (NASDAQ:TWNK) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Hostess Brands, Inc. (NASDAQ:TWNK) a first-rate investment today? The smart money is getting more bullish. The number of long hedge fund positions rose by 4 recently, therefore the company had 24 hedge funds with long positions at the end of the third quarter. Still, that number was far from enough for the stock to be included in the list of 30 most popular stocks among ALL hedge funds.
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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
While gathering more data about Hostess Brands, Inc. (NASDAQ:TWNK), we tracked Artko Capital’s Q3 2018 Commentary, in which this investment manager shares its views on the company. Here is that part of the report:
“Hostess Brands $5.75 October 2020 Warrants (TWNKW) – We have been sellers of our position in the warrants of Hostess Brands throughout the last year at prices ranging from above $2.00 to a low of $1.20 and finally sold out of the rest of our position, which down to 1% of the portfolio at the end of the third quarter. This has been a successful investment for us, and we were able to realize most of the gains at higher, above $2.00 prices, and took a modest loss on the last silver. Hostess came charging hard out of the gate since coming back to market; picking up lost market share and driving revenues through introduction of new products. However, with the recent senior management change, a competitive environment and a significantly stretched balanced sheet, the turnaround story seems to have played out and the company is no longer as undervalued relative to its competitors, especially in light of lackluster growth in the next few years. It is still an interesting story and we might be interested in coming back into the warrants in the future but, given the heavy index ownership and major Wall Street coverage, we believe at the present time our capital is better served by being committed to other, less covered opportunities.”
Continuing with our analysis, we’re going to take a gander at the new hedge fund action encompassing Hostess Brands, Inc. (NASDAQ:TWNK).
How are hedge funds trading Hostess Brands, Inc. (NASDAQ:TWNK)?
Heading into the fourth quarter of 2018, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TWNK over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Hostess Brands, Inc. (NASDAQ:TWNK) was held by Cardinal Capital, which reported holding $60.7 million worth of stock at the end of September. It was followed by Aristeia Capital with a $8.8 million position. Other investors bullish on the company included Highbridge Capital Management, GLG Partners, and 683 Capital Partners.
As industrywide interest jumped, specific money managers were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, established the most outsized position in Hostess Brands, Inc. (NASDAQ:TWNK). PEAK6 Capital Management had $0.4 million invested in the company at the end of the quarter. Adam Usdan’s Trellus Management Company also initiated a $0.2 million position during the quarter. The other funds with brand new TWNK positions are Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Joel Greenblatt’s Gotham Asset Management, and Guy Shahar’s DSAM Partners.
Let’s go over hedge fund activity in other stocks similar to Hostess Brands, Inc. (NASDAQ:TWNK). National Storage Affiliates Trust (NYSE:NSA) and Suburban Propane Partners LP (NYSE:SPH). This group of stocks’ market caps are similar to TWNK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NSA | 17 | 72715 | 8 |
| SPH | 4 | 86291 | -1 |
| TRUE | 18 | 358941 | 1 |
| BRY | 14 | 178017 | 14 |
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $92 million in TWNK’s case. National Storage Affiliates Trust (NYSE:NSA) is the most popular stock in this table. On the other hand, Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 4 bullish hedge fund positions. Seeing that the stock wasn’t the most popular in the group, we would rather pay our attention to the stock hedge funds are piling on, hence, in this case, NSA might be a better candidate for a longer run.
Disclosure: None. This article was originally published at Insider Monkey.
