Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Papa John’s International, Inc. (NASDAQ:PZZA).
Papa John’s International, Inc. (NASDAQ:PZZA) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2018. PZZA investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 27 hedge funds in our database with PZZA holdings at the end of the previous quarter. Our calculations also showed that PZZA 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the key hedge fund action surrounding Papa John’s International, Inc. (NASDAQ:PZZA).
Hedge fund activity in Papa John’s International, Inc. (NASDAQ:PZZA)
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PZZA over the last 14 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Papa John’s International, Inc. (NASDAQ:PZZA) was held by Legion Partners Asset Management, which reported holding $68.7 million worth of stock at the end of December. It was followed by Bares Capital Management with a $62.6 million position. Other investors bullish on the company included Black-and-White Capital, Citadel Investment Group, and Millennium Management.
Seeing as Papa John’s International, Inc. (NASDAQ:PZZA) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that slashed their full holdings last quarter. Intriguingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, totaling an estimated $20.3 million in call options. Alexander Mitchell’s fund, Scopus Asset Management, also dumped its call options, about $12.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Papa John’s International, Inc. (NASDAQ:PZZA) but similarly valued. These stocks are Builders FirstSource, Inc. (NASDAQ:BLDR), Safety Insurance Group, Inc. (NASDAQ:SAFT), Usa Compression Partners LP (NYSE:USAC), and TriMas Corp (NASDAQ:TRS). All of these stocks’ market caps are similar to PZZA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLDR | 33 | 278783 | -4 |
| SAFT | 11 | 39390 | 0 |
| USAC | 5 | 7007 | 0 |
| TRS | 16 | 112325 | 0 |
| Average | 16.25 | 109376 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $209 million in PZZA’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 5 bullish hedge fund positions. Papa John’s International, Inc. (NASDAQ:PZZA) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on PZZA as the stock returned 24.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
