Should You Consider Adding Cheesecake Factory Inc (CAKE) to Your Portfolio’s Menu?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Cheesecake Factory Inc (NASDAQ:CAKE) from the perspective of those elite funds.

Is Cheesecake Factory Inc (NASDAQ:CAKE) the right investment to pursue these days? Hedge funds are buying. The number of bullish hedge fund positions advanced by 3 in recent months. CAKE was in 22 hedge funds’ portfolios at the end of the third quarter of 2016. There were 19 hedge funds in our database with CAKE 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 B2Gold Corp (NYSEMKT:BTG), UniFirst Corp (NYSE:UNF), and Whiting Petroleum Corp (NYSE:WLL) to gather more data points.

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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How are hedge funds trading Cheesecake Factory Inc (NASDAQ:CAKE)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 16% rise from the second quarter of 2016. Smart money ownership of the company has remained in a relatively narrow range throughout the past year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, GAMCO Investors, managed by Mario Gabelli, holds the biggest position in Cheesecake Factory Inc (NASDAQ:CAKE). GAMCO Investors has a $44.2 million position in the stock. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $31.4 million position. Some other members of the smart money that are bullish encompass Joel Greenblatt’s Gotham Asset Management, Israel Englander’s Millennium Management and Steve Cohen’s Point72 Asset Management.

Now, specific money managers have jumped into Cheesecake Factory Inc (NASDAQ:CAKE) headfirst. Caxton Associates LP, managed by Bruce Kovner, established the most valuable position in Cheesecake Factory Inc (NASDAQ:CAKE). Caxton Associates LP had $4.4 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new CAKE investors: Neil Chriss’ Hutchin Hill Capital, Adam Weiss’ Stillwater Investment Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cheesecake Factory Inc (NASDAQ:CAKE) but similarly valued. We will take a look at B2Gold Corp (NYSEMKT:BTG), UniFirst Corp (NYSE:UNF), Whiting Petroleum Corp (NYSE:WLL), and Generac Holdings Inc. (NYSE:GNRC). All of these stocks’ market caps are closest to CAKE’s market cap.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $168 million in CAKE’s case. Whiting Petroleum Corp (NYSE:WLL) is the most popular stock in this table. On the other hand B2Gold Corp (NYSEMKT:BTG) is the least popular one with only 12 bullish hedge fund positions. Cheesecake Factory Inc (NASDAQ:CAKE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds really like. In this regard WLL might be a better candidate to consider a long position in.

Disclosure: None