Were Hedge Funds Right About The Cheesecake Factory Incorporated (CAKE)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in The Cheesecake Factory Incorporated (NASDAQ:CAKE)? The smart money sentiment can provide an answer to this question.

The Cheesecake Factory Incorporated (NASDAQ:CAKE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of March. Our calculations also showed that CAKE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 Range Resources Corp. (NYSE:RRC), Allegheny Technologies Incorporated (NYSE:ATI), and SPX FLOW, Inc. (NASDAQ:FLOW) to gather more data points.

To most traders, hedge funds are seen as underperforming, old investment tools of yesteryear. While there are over 8000 funds in operation at the moment, Our researchers look at the top tier of this group, about 850 funds. Most estimates calculate that this group of people manage the majority of all hedge funds’ total asset base, and by paying attention to their best stock picks, Insider Monkey has figured out numerous investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 check out the latest hedge fund action regarding The Cheesecake Factory Incorporated (NASDAQ:CAKE).

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

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CAKE over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Candlestick Capital Management held the most valuable stake in The Cheesecake Factory Incorporated (NASDAQ:CAKE), which was worth $51.3 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $29.5 million worth of shares. Arrowstreet Capital, Tremblant Capital, and GAMCO Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Candlestick Capital Management allocated the biggest weight to The Cheesecake Factory Incorporated (NASDAQ:CAKE), around 1.12% of its 13F portfolio. Tremblant Capital is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to CAKE.

Judging by the fact that The Cheesecake Factory Incorporated (NASDAQ:CAKE) has experienced a decline in interest from hedge fund managers, we can see that there were a few fund managers that decided to sell off their full holdings last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $39.5 million in stock, and Principal Global Investors’s Columbus Circle Investors was right behind this move, as the fund cut about $8.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Cheesecake Factory Incorporated (NASDAQ:CAKE) but similarly valued. These stocks are Range Resources Corp. (NYSE:RRC), Allegheny Technologies Incorporated (NYSE:ATI), SPX FLOW, Inc. (NASDAQ:FLOW), Broadstone Net Lease, Inc. (NYSE:BNL), Main Street Capital Corporation (NYSE:MAIN), Sunoco LP (NYSE:SUN), and Surgery Partners, Inc. (NASDAQ:SGRY). This group of stocks’ market values are similar to CAKE’s market value.

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As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $172 million in CAKE’s case. Range Resources Corp. (NYSE:RRC) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 2 bullish hedge fund positions. The Cheesecake Factory Incorporated (NASDAQ:CAKE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CAKE is 58.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately CAKE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CAKE were disappointed as the stock returned -11.5% since the end of March (through 7/23) 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 many of these stocks already outperformed the market since 2019.

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

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