Is TWNK Stock A Buy or Sell?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Hostess Brands, Inc. (NASDAQ:TWNK) based on that data.

Is TWNK stock a buy? Hostess Brands, Inc. (NASDAQ:TWNK) investors should pay attention to a decrease in enthusiasm from smart money recently. Hostess Brands, Inc. (NASDAQ:TWNK) was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 37. There were 30 hedge funds in our database with TWNK positions at the end of the third quarter. Our calculations also showed that TWNK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s review the recent hedge fund action surrounding Hostess Brands, Inc. (NASDAQ:TWNK).

Do Hedge Funds Think TWNK Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2020. By comparison, 37 hedge funds held shares or bullish call options in TWNK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Cardinal Capital held the most valuable stake in Hostess Brands, Inc. (NASDAQ:TWNK), which was worth $106.7 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $68.5 million worth of shares. Renaissance Technologies, Armistice Capital, and Aristeia Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Hostess Brands, Inc. (NASDAQ:TWNK), around 3.11% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, designating 1.33 percent of its 13F equity portfolio to TWNK.

Seeing as Hostess Brands, Inc. (NASDAQ:TWNK) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that decided to sell off their entire stakes by the end of the fourth quarter. It’s worth mentioning that Steve Pigott’s Fort Baker Capital Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, valued at close to $5.7 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund sold off about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Hostess Brands, Inc. (NASDAQ:TWNK). We will take a look at Micro Focus Intl PLC (NYSE:MFGP), Genworth Financial Inc (NYSE:GNW), Domo Inc. (NASDAQ:DOMO), Inter Parfums, Inc. (NASDAQ:IPAR), CorVel Corporation (NASDAQ:CRVL), SiTime Corporation (NASDAQ:SITM), and Service Properties Trust (NASDAQ:SVC). This group of stocks’ market values are closest to TWNK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $301 million in TWNK’s case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 10 bullish hedge fund positions. Hostess Brands, Inc. (NASDAQ:TWNK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TWNK is 52.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately TWNK wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on TWNK were disappointed as the stock returned 1.8% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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