With the price of oil near decade lows, consumers have more spending power than ever before. Given the accommodating climate, it’s not surprising that many smart money funds are long McDonald’s Corporation (NYSE:MCD), Yum! Brands, Inc. (NYSE:YUM), Starbucks Corporation (NASDAQ:SBUX), Darden Restaurants, Inc. (NYSE:DRI), and Bloomin’ Brands Inc (NASDAQ:BLMN), restaurant chains that will benefit the increased consumer spending. Let’s take a closer look at each of the five stocks.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
#5 Bloomin’ Brands Inc (NASDAQ:BLMN)
– Number of Hedge Fund Holders (as of September 30): 30
– Total Value of Hedge Fund Holdings (as of September 30): $408.07 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 18.30%
Bloomin’ Brands Inc (NASDAQ:BLMN) turned in a mixed third quarter, with EPS of $0.15 on revenue of $1.03 billion. Although profits exceeded analyst expectations by $0.01 per share, sales missed estimates by $10 million. U.S. comparable restaurant sales retreated by 1.3% year-over-year and the company’s restaurant-level operating margin was flat. Although Bloomin’ Brands’ fundamentals aren’t exactly blowing away expectations, hedge funds like the stock because Bloomin’ Brends trades at just 11.42 times forward earnings. Among the 30 funds long the stock at the end of the third quarter is Thomas E. Claugus‘ GMT Capital.
#4 Darden Restaurants, Inc. (NYSE:DRI)
– Number of Hedge Fund Holders (as of September 30): 33
– Total Value of Hedge Fund Holdings (as of September 30): $1.35 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 15.50%
Seeing as how the U.S. economy is strong and wage growth is rising again, 33 elite funds were long Darden Restaurants, Inc. (NYSE:DRI) at the end of the third quarter. Among the bulls is Jeffrey Smith‘s Starboard Value LP, which kept its stake of 11.64 million shares constant quarter-over-quarter, and Joel Greenblatt‘s Gotham Asset Management, which bumped up its stake by 20% to 696,639 shares. Hedge funds are buying because Darden pays an attractive 3.75% dividend yield and trades for a forward P/E of 16.11. After spinning-off its select real estate and restaurant assets into a separate REIT named Four Corners Property Trust, Inc. (NYSE: FCPT) in November, the company also plans to reduce its debt by $1 billion. If the economy improves, look for Darden EPS to rise.