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Do Hedge Funds Regret Betting On The Cheesecake Factory Incorporated (CAKE)?

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards The Cheesecake Factory Incorporated (NASDAQ:CAKE).

Is The Cheesecake Factory Incorporated (NASDAQ:CAKE) going to take off soon? Hedge funds are turning bullish. The number of bullish hedge fund positions went up by 3 lately. Our calculations also showed that CAKE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mario Gabelli of GAMCO Investors

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action regarding The Cheesecake Factory Incorporated (NASDAQ:CAKE).

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

Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in 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.

Among these funds, GAMCO Investors held the most valuable stake in The Cheesecake Factory Incorporated (NASDAQ:CAKE), which was worth $20.7 million at the end of the third quarter. On the second spot was GLG Partners which amassed $11.2 million worth of shares. Citadel Investment Group, Winton Capital Management, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Voss Capital allocated the biggest weight to The Cheesecake Factory Incorporated (NASDAQ:CAKE), around 0.69% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, dishing out 0.59 percent of its 13F equity portfolio to CAKE.

As industrywide interest jumped, key money managers have jumped into The Cheesecake Factory Incorporated (NASDAQ:CAKE) headfirst. Winton Capital Management, managed by David Harding, initiated the most outsized position in The Cheesecake Factory Incorporated (NASDAQ:CAKE). Winton Capital Management had $7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $3 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Travis Cocke’s Voss Capital, and Donald Sussman’s Paloma Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Cheesecake Factory Incorporated (NASDAQ:CAKE) but similarly valued. These stocks are Heartland Express, Inc. (NASDAQ:HTLD), Merit Medical Systems, Inc. (NASDAQ:MMSI), ICF International Inc (NASDAQ:ICFI), and BRP Inc. (NASDAQ:DOOO). All of these stocks’ market caps match CAKE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTLD 14 22928 -4
MMSI 17 80551 0
ICFI 11 29456 0
DOOO 9 126097 -1
Average 12.75 64758 -1.25

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 $65 million. That figure was $87 million in CAKE’s case. Merit Medical Systems, Inc. (NASDAQ:MMSI) is the most popular stock in this table. On the other hand BRP Inc. (NASDAQ:DOOO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks The Cheesecake Factory Incorporated (NASDAQ:CAKE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately CAKE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CAKE were disappointed as the stock returned -56.3% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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