Did Hedge Funds Drop The Ball On Dine Brands Global, Inc. (DIN) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Dine Brands Global, Inc. (NYSE:DIN) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Dine Brands Global, Inc. (NYSE:DIN) shareholders have witnessed an increase in support from the world’s most elite money managers of late. DIN was in 21 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with DIN positions at the end of the previous quarter. Our calculations also showed that DIN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a look at the recent hedge fund action encompassing Dine Brands Global, Inc. (NYSE:DIN).

What have hedge funds been doing with Dine Brands Global, Inc. (NYSE:DIN)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the fourth quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in DIN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Dine Brands Global, Inc. (NYSE:DIN) was held by Renaissance Technologies, which reported holding $21.6 million worth of stock at the end of September. It was followed by MSD Capital with a $21.2 million position. Other investors bullish on the company included North Peak Capital, Millennium Management, and Clearline Capital. In terms of the portfolio weights assigned to each position MSD Capital allocated the biggest weight to Dine Brands Global, Inc. (NYSE:DIN), around 73% of its 13F portfolio. North Peak Capital is also relatively very bullish on the stock, dishing out 3.23 percent of its 13F equity portfolio to DIN.

As industrywide interest jumped, key money managers have been driving this bullishness. North Peak Capital, managed by Michael Kahan and Jeremy Kahan, assembled the biggest position in Dine Brands Global, Inc. (NYSE:DIN). North Peak Capital had $6.7 million invested in the company at the end of the quarter. Marc Majzner’s Clearline Capital also initiated a $2.9 million position during the quarter. The other funds with new positions in the stock are Stephen Mildenhall’s Contrarius Investment Management, C. Jonathan Gattman’s Cloverdale Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dine Brands Global, Inc. (NYSE:DIN) but similarly valued. We will take a look at M/I Homes Inc (NYSE:MHO), Himax Technologies, Inc. (NASDAQ:HIMX), Dime Community Bancshares, Inc. (NASDAQ:DCOM), and Diamond S Shipping Inc. (NYSE:DSSI). This group of stocks’ market values are similar to DIN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $72 million in DIN’s case. M/I Homes Inc (NYSE:MHO) is the most popular stock in this table. On the other hand Himax Technologies, Inc. (NASDAQ:HIMX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Dine Brands Global, Inc. (NYSE:DIN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on DIN as the stock returned 47.9% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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