Did Hedge Funds Make The Right Call On The Cheesecake Factory Incorporated (CAKE) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of The Cheesecake Factory Incorporated (NASDAQ:CAKE) based on that data and determine whether they were really smart about the stock.

The Cheesecake Factory Incorporated (NASDAQ:CAKE) was in 22 hedge funds’ portfolios at the end of March. CAKE investors should pay attention to a decrease in hedge fund interest recently. There were 27 hedge funds in our database with CAKE holdings at the end of the previous quarter. Our calculations also showed that CAKE 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mario Gabelli of GAMCO Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding The Cheesecake Factory Incorporated (NASDAQ:CAKE).

How are hedge funds trading The Cheesecake Factory Incorporated (NASDAQ:CAKE)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAKE over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Michael Zimmerman’s Prentice Capital Management has the number one position in The Cheesecake Factory Incorporated (NASDAQ:CAKE), worth close to $10.3 million, corresponding to 4.9% of its total 13F portfolio. Coming in second is GAMCO Investors, managed by Mario Gabelli, which holds a $8.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Robert Pitts’s Steadfast Capital Management, Ken Griffin’s Citadel Investment Group and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to The Cheesecake Factory Incorporated (NASDAQ:CAKE), around 4.87% of its 13F portfolio. Solas Capital Management is also relatively very bullish on the stock, designating 2.68 percent of its 13F equity portfolio to CAKE.

Due to the fact that The Cheesecake Factory Incorporated (NASDAQ:CAKE) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that slashed their positions entirely by the end of the first quarter. At the top of the heap, Noam Gottesman’s GLG Partners sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $11.2 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund said goodbye to about $7 million worth. These transactions are interesting, as total hedge fund interest fell by 5 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to The Cheesecake Factory Incorporated (NASDAQ:CAKE). We will take a look at Waddell & Reed Financial, Inc. (NYSE:WDR), Newmark Group, Inc. (NASDAQ:NMRK), Saul Centers Inc (NYSE:BFS), and Raven Industries, Inc. (NASDAQ:RAVN). This group of stocks’ market caps resemble CAKE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WDR 22 73802 1
NMRK 24 66647 1
BFS 7 25019 -1
RAVN 11 73375 -2
Average 16 59711 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $66 million in CAKE’s case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand Saul Centers Inc (NYSE:BFS) is the least popular one with only 7 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 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CAKE as the stock returned 34.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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