Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Shake Shack Inc (NYSE:SHAK) from the perspective of those successful funds.
Shake Shack Inc (NYSE:SHAK) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. SHAK was in 11 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with SHAK holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Stratasys, Ltd. (NASDAQ:SSYS), Cempra Inc (NASDAQ:CEMP), and Adams Diversified Equity Fund Inc (NYSE:ADX) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s take a peek at the recent action regarding Shake Shack Inc (NYSE:SHAK).
What does the smart money think about Shake Shack Inc (NYSE:SHAK)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decrease of 21% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in SHAK at the beginning of this year. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the largest position in Shake Shack Inc (NYSE:SHAK), worth close to $30.7 million. Sitting at the No. 2 spot is Joel Ramin of 12 West Capital Management, with a $27 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Philippe Laffont’s Coatue Management, Warren Lammert’s Granite Point Capital and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that Shake Shack Inc (NYSE:SHAK) has experienced falling interest from the smart money, logic holds that there exists a select few hedge funds that decided to sell off their full holdings in the third quarter. Interestingly, Edmond M. Safra’s EMS Capital cashed in the biggest position of the 700 funds tracked by Insider Monkey, totaling about $15.3 million in stock, and D. E. Shaw’s D E Shaw, one of the largest hedge funds in the world, was right behind this move, as the fund dropped about $6.7 million worth of shares.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Shake Shack Inc (NYSE:SHAK) but similarly valued. We will take a look at Stratasys, Ltd. (NASDAQ:SSYS), Cempra Inc (NASDAQ:CEMP), Adams Diversified Equity Fund Inc (NYSE:ADX), and Headwaters Inc (NYSE:HW). This group of stocks’ market caps are closest to SHAK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSYS | 18 | 143762 | 6 |
| CEMP | 15 | 164527 | 1 |
| ADX | 4 | 6090 | 4 |
| HW | 23 | 85313 | 0 |
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $86 million in SHAK’s case. Headwaters Inc (NYSE:HW) is the most popular stock in this table. On the other hand Adams Diversified Equity Fund Inc (NYSE:ADX) is the least popular one with only 4 bullish hedge fund positions. Shake Shack Inc (NYSE:SHAK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HW might be a better candidate to consider taking a long position in.
Disclosure: None
