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Will The Cheesecake Factory Incorporated (CAKE) Fatten Up Your Investment Portfolio?

World-class money managers like Bill Ackman and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is The Cheesecake Factory Incorporated (NASDAQ:CAKE) an excellent investment right now? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund bets shrunk by 2 lately. At the end of this article we will also compare The Cheesecake Factory to other stocks including Companhia de Saneamento Basico (ADR) (NYSE:SBS), Armstrong World Industries, Inc. (NYSE:AWI), and Noble Corporation (NYSE:NE) to get a better sense of its popularity.

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At the moment there are tons of indicators shareholders put to use to appraise publicly traded companies. A duo of the most underrated indicators are hedge fund and insider trading activity. our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass the market by a healthy amount (see the details here).

With all of this in mind, let’s take a peek at the new action surrounding The Cheesecake Factory Incorporated (NASDAQ:CAKE).

Hedge fund activity in The Cheesecake Factory Incorporated (NASDAQ:CAKE)

Heading into Q4, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 9% from one quarter earlier. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the biggest position in The Cheesecake Factory Incorporated (NASDAQ:CAKE), worth close to $50.5 million, accounting for 0.3% of its total 13F portfolio. On GAMCO Investors’ heels is Cliff Asness of AQR Capital Management, with a $21.1 million position; the fund manager has less than 0.1% of his firm’s 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Renaissance Technologies, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Ken Griffin’s Citadel Investment Group.

Seeing as The Cheesecake Factory Incorporated (NASDAQ:CAKE) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of funds that slashed their full holdings by the end of the third quarter. Intriguingly, Gabriel Plotkin’s Melvin Capital Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, valued at close to $19.9 million in stock, and Gregg Moskowitz of Interval Partners was right behind this move, as the fund dumped about $19.7 million worth of shares. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to The Cheesecake Factory Incorporated (NASDAQ:CAKE). These stocks are Companhia de Saneamento Basico (ADR) (NYSE:SBS), Armstrong World Industries, Inc. (NYSE:AWI), Noble Corporation (NYSE:NE), and Compass Minerals International, Inc. (NYSE:CMP). This group of stocks’ market caps are similar to The Cheesecake Factory’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBS 13 88878 -1
AWI 37 1317888 5
NE 22 186718 -5
CMP 10 82064 -8

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $419 million. That figure was $169 million in The Cheesecake Factory’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only 10 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 Armstrong World Industries might be a better candidate to consider a long position in.

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