Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Zoe’s Kitchen Inc (NYSE:ZOES) .
Zoe’s Kitchen Inc (NYSE:ZOES) was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. ZOES has seen a decrease in support from the world’s most successful money managers lately. There were 9 hedge funds in our database with ZOES positions 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 World Acceptance Corp. (NASDAQ:WRLD), China Distance Education Hldgs Ltd (ADR) (NYSE:DL), and Spark Energy Inc (NASDAQ:SPKE) to gather more data points.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Hedge fund activity in Zoe’s Kitchen Inc (NYSE:ZOES)
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, decreased by 33% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards ZOES over the last 5 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Miura Global Management, led by Pasco Alfaro / Richard Tumure, holds the most valuable position in Zoe’s Kitchen Inc (NYSE:ZOES). Miura Global Management has a $11.1 million position in the stock, comprising 1.2% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, which holds a $6.6 million position. Some other members of the smart money that hold long positions consist of Joseph Mathias’ Concourse Capital Management, and Wallace Weitz’s Wallace R. Weitz & Co.. 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.
Because Zoe’s Kitchen Inc (NYSE:ZOES) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Columbus Circle Investors dropped the biggest investment of all the hedgies monitored by Insider Monkey, valued at close to $13.7 million in stock. Joseph A. Jolson’s fund, Harvest Capital Strategies, also dropped its stock, about $4 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zoe’s Kitchen Inc (NYSE:ZOES) but similarly valued. We will take a look at World Acceptance Corp. (NASDAQ:WRLD), China Distance Education Hldgs Ltd (ADR) (NYSE:DL), Spark Energy Inc (NASDAQ:SPKE), and Donegal Group Inc (NASDAQ:DGICA). All of these stocks’ market caps are similar to ZOES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WRLD | 11 | 29434 | 1 |
| DL | 5 | 10437 | 1 |
| SPKE | 9 | 11785 | 0 |
| DGICA | 3 | 5512 | -1 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $24 million in ZOES’s case. World Acceptance Corp. (NASDAQ:WRLD) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 3 bullish hedge fund positions. Zoe’s Kitchen Inc (NYSE:ZOES) 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 WRLD might be a better candidate to consider taking a long position in.
Disclosure: None
