Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Texas Roadhouse Inc (NASDAQ:TXRH) to find out whether there were any major changes in hedge funds’ views.
Is TXRH a good stock to buy now? Prominent investors were in a pessimistic mood. The number of long hedge fund bets were cut by 3 lately. Texas Roadhouse Inc (NASDAQ:TXRH) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that TXRH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 25 hedge funds in our database with TXRH holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 check out the key hedge fund action encompassing Texas Roadhouse Inc (NASDAQ:TXRH).
Do Hedge Funds Think TXRH Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in TXRH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Melvin Capital Management held the most valuable stake in Texas Roadhouse Inc (NASDAQ:TXRH), which was worth $164.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $63.6 million worth of shares. Point72 Asset Management, AQR Capital Management, and Maplelane 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 Melvin Capital Management allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 0.82% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to TXRH.
Due to the fact that Texas Roadhouse Inc (NASDAQ:TXRH) has witnessed bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes last quarter. It’s worth mentioning that Jack Woodruff’s Candlestick Capital Management dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $34.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $8.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Texas Roadhouse Inc (NASDAQ:TXRH). We will take a look at PennyMac Financial Services Inc (NYSE:PFSI), II-VI, Inc. (NASDAQ:IIVI), OneMain Holdings Inc (NYSE:OMF), MAXIMUS, Inc. (NYSE:MMS), DouYu International Holdings Limited (NASDAQ:DOYU), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), and MorphoSys AG (NASDAQ:MOR). This group of stocks’ market values are closest to TXRH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFSI | 31 | 443555 | 6 |
| IIVI | 24 | 104148 | -4 |
| OMF | 33 | 470569 | -4 |
| MMS | 22 | 127113 | -4 |
| DOYU | 23 | 165123 | 8 |
| TKC | 5 | 35465 | 0 |
| MOR | 4 | 13716 | -2 |
| Average | 20.3 | 194241 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $337 million in TXRH’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 4 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TXRH is 57.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on TXRH as the stock returned 28.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
