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Is Del Taco Restaurants Inc (TACO) a Good Stock to Buy?

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Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

One stock that saw an increase in popularity among smart money investors last quarter is Del Taco Restaurants Inc (NASDAQ:TACO), in which 15 funds from our database held shares at the end of September. However, 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 KEYW Holding Corp. (NASDAQ:KEYW), Intersect ENT Inc (NASDAQ:XENT), and Vicor Corp (NASDAQ:VICR) to gather more data points.

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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.

Piccia Neri/Shutterstock.com

Piccia Neri/Shutterstock.com

With all of this in mind, we’re going to take a look at the new action surrounding Del Taco Restaurants Inc (NASDAQ:TACO).

How are hedge funds trading Del Taco Restaurants Inc (NASDAQ:TACO)?

Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, up by one fund from the end of June. The graph below displays the number of hedge funds with bullish position in TACO over the last five quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TACO Chart

When looking at the institutional investors followed by Insider Monkey, Jonathan Lennon’s Pleasant Lake Partners has the largest position in Del Taco Restaurants Inc (NASDAQ:TACO), worth close to $36.5 million, comprising 53.3% of its total 13F portfolio. On Pleasant Lake Partners’s heels is ACK Asset Management, led by Richard S. Meisenberg, holding a $11.6 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Paul Tudor Jones’s Tudor Investment Corp and Dmitry Balyasny’s Balyasny Asset Management.

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