Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about The Cheesecake Factory Incorporated (NASDAQ:CAKE).
The Cheesecake Factory Incorporated (NASDAQ:CAKE) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that CAKE isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the key hedge fund action encompassing The Cheesecake Factory Incorporated (NASDAQ:CAKE).
Hedge fund activity in The Cheesecake Factory Incorporated (NASDAQ:CAKE)
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in CAKE heading into this year. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Armistice Capital, managed by Steven Boyd, holds the biggest position in The Cheesecake Factory Incorporated (NASDAQ:CAKE). Armistice Capital has a $58.9 million call position in the stock, comprising 3.5% of its 13F portfolio. On Armistice Capital’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $47.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Mario Gabelli’s GAMCO Investors, John Overdeck and David Siegel’s Two Sigma Advisors and Lee Ainslie’s Maverick Capital.
As aggregate interest increased, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most outsized call position in The Cheesecake Factory Incorporated (NASDAQ:CAKE). Balyasny Asset Management had $5.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $2.1 million investment in the stock during the quarter. The other funds with brand new CAKE positions are Mike Vranos’s Ellington and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Cheesecake Factory Incorporated (NASDAQ:CAKE) but similarly valued. We will take a look at Mallinckrodt Public Limited Company (NYSE:MNK), Premier Inc (NASDAQ:PINC), Regenxbio Inc (NASDAQ:RGNX), and Avaya Holdings Corp. (NYSE:AVYA). This group of stocks’ market valuations resemble CAKE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MNK | 20 | 490595 | -1 |
| PINC | 21 | 214420 | 3 |
| RGNX | 24 | 418010 | 3 |
| AVYA | 34 | 588061 | 0 |
| Average | 24.75 | 427772 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $152 million in CAKE’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Mallinckrodt Public Limited Company (NYSE:MNK) is the least popular one with only 20 bullish hedge fund positions. The Cheesecake Factory Incorporated (NASDAQ:CAKE) 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 AVYA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
