Should I Buy Denny’s Corporation (DENN)?

Is Denny’s Corporation (NASDAQ:DENN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in Denny’s Corporation (NASDAQ:DENN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DENN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare DENN to other stocks including Varex Imaging Corporation (NASDAQ:VREX), RPT Realty (NYSE:RPT), and DMC Global Inc. (NASDAQ:BOOM) to get a better sense of its popularity.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Mario Gabelli of GAMCO Investors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s view the new hedge fund action surrounding Denny’s Corporation (NASDAQ:DENN).

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

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DENN over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Denny’s Corporation (NASDAQ:DENN). Fisher Asset Management has a $36.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $20.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Mark Coe’s Intrinsic Edge Capital, Mario Gabelli’s GAMCO Investors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Denny’s Corporation (NASDAQ:DENN), around 0.59% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to DENN.

Due to the fact that Denny’s Corporation (NASDAQ:DENN) has faced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies that decided to sell off their positions entirely in the second quarter. Interestingly, Eli Cohen’s Crescent Park Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, comprising close to $8.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $7.7 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. We will take a look at Varex Imaging Corporation (NASDAQ:VREX), RPT Realty (NYSE:RPT), DMC Global Inc. (NASDAQ:BOOM), Edgewise Therapeutics, Inc. (NASDAQ:EWTX), Ebix Inc (NASDAQ:EBIX), Re/Max Holdings Inc (NYSE:RMAX), and Coherus Biosciences Inc (NASDAQ:CHRS). This group of stocks’ market caps match DENN’s market cap.

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As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $106 million in DENN’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Ebix Inc (NASDAQ:EBIX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Denny’s Corporation (NASDAQ:DENN) is more popular among hedge funds. Our overall hedge fund sentiment score for DENN is 81.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately DENN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DENN were disappointed as the stock returned -4% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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