“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards The Habit Restaurants, Inc. (NASDAQ:HABT) and see how it was affected.
The Habit Restaurants, Inc. (NASDAQ:HABT) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. HABT was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with HABT positions at the end of the previous quarter. Our calculations also showed that habt isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the fresh hedge fund action surrounding The Habit Restaurants, Inc. (NASDAQ:HABT).
What does the smart money think about The Habit Restaurants, Inc. (NASDAQ:HABT)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HABT over the last 13 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of The Habit Restaurants, Inc. (NASDAQ:HABT), with a stake worth $19.9 million reported as of the end of September. Trailing Renaissance Technologies was Greenhouse Funds, which amassed a stake valued at $13.1 million. Millennium Management, Two Sigma Advisors, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Because The Habit Restaurants, Inc. (NASDAQ:HABT) has witnessed bearish sentiment from the smart money, we can see that there was a specific group of hedge funds that slashed their entire stakes heading into Q3. It’s worth mentioning that John Burbank’s Passport Capital dropped the largest investment of the 700 funds followed by Insider Monkey, valued at an estimated $11.4 million in stock, and Ted White and Christopher Kiper’s Legion Partners Asset Management was right behind this move, as the fund dropped about $3.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Habit Restaurants, Inc. (NASDAQ:HABT) but similarly valued. We will take a look at Carriage Services, Inc. (NYSE:CSV), InnerWorkings, Inc. (NASDAQ:INWK), electroCore, Inc. (NASDAQ:ECOR), and IES Holdings, Inc. (NASDAQ:IESC). This group of stocks’ market valuations are similar to HABT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSV | 9 | 34167 | -1 |
| INWK | 15 | 74385 | 3 |
| ECOR | 7 | 16067 | -2 |
| IESC | 4 | 261978 | 0 |
| Average | 8.75 | 96649 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $51 million in HABT’s case. InnerWorkings, Inc. (NASDAQ:INWK) is the most popular stock in this table. On the other hand IES Holdings, Inc. (NASDAQ:IESC) is the least popular one with only 4 bullish hedge fund positions. The Habit Restaurants, Inc. (NASDAQ:HABT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard INWK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
