Should You Avoid Denny’s Corporation (DENN)?

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 Denny’s Corporation (NASDAQ:DENN) from the perspective of those successful funds.

Denny’s Corporation (NASDAQ:DENN) investors should pay attention to a decrease in support from the world’s most successful money managers lately. DENN was in 13 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with DENN holdings at the end of the previous quarter. At the end of this article we will also compare DENN to other stocks including Scorpio Tankers Inc. (NYSE:STNG), TrueCar Inc (NASDAQ:TRUE), and Ingles Markets, Incorporated (NASDAQ:IMKTA) to get a better sense of its popularity.

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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Hedge fund activity in Denny’s Corporation (NASDAQ:DENN)

Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 13% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in DENN at the beginning of this year. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, one of the largest hedge funds in the world, has the largest position in Denny’s Corporation (NASDAQ:DENN), worth close to $36.3 million. Coming in second is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital holding a $7.9 million position. Other peers that are bullish encompass Robert B. Gillam’s McKinley Capital Management, D. E. Shaw’s D E Shaw and Mario Gabelli’s GAMCO Investors. 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.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that said goodbye to their entire stakes in the stock during the third quarter. At the top of the heap, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors said goodbye to the largest stake of all the investors followed by Insider Monkey, totaling an estimated $2 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $1.6 million worth.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. These stocks are Scorpio Tankers Inc. (NYSE:STNG), TrueCar Inc (NASDAQ:TRUE), Ingles Markets, Incorporated (NASDAQ:IMKTA), and Carmike Cinemas, Inc. (NASDAQ:CKEC). This group of stocks’ market values are similar to DENN’s market value.

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 $121 million. That figure was $75 million in DENN’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Ingles Markets, Incorporated (NASDAQ:IMKTA) is the least popular one with only 10 bullish hedge fund positions. Denny’s Corporation (NASDAQ:DENN) 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 STNG might be a better candidate to consider taking a long position in.

Disclosure: None