Hedge Funds Are Crazy About Whole Earth Brands, Inc. (FREE)

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Whole Earth Brands, Inc. (NASDAQ:FREE) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Whole Earth Brands, Inc. (NASDAQ:FREE) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. Whole Earth Brands, Inc. (NASDAQ:FREE) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 15 hedge funds in our database with FREE positions at the end of the first quarter. Our calculations also showed that FREE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

If you’d ask most market participants, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at the moment, Our researchers look at the top tier of this club, approximately 850 funds. It is estimated that this group of investors command the lion’s share of the smart money’s total capital, and by tracking their top picks, Insider Monkey has identified a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to go over the key hedge fund action surrounding Whole Earth Brands, Inc. (NASDAQ:FREE).

What have hedge funds been doing with Whole Earth Brands, Inc. (NASDAQ:FREE)?

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 53% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FREE over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Rubric Capital Management held the most valuable stake in Whole Earth Brands, Inc. (NASDAQ:FREE), which was worth $17.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $16.4 million worth of shares. Clearline Capital, Magnetar Capital, and Interval Partners 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 Clearline Capital allocated the biggest weight to Whole Earth Brands, Inc. (NASDAQ:FREE), around 3.47% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, earmarking 2.04 percent of its 13F equity portfolio to FREE.

Now, some big names were breaking ground themselves. Rubric Capital Management, managed by David Rosen, initiated the most outsized position in Whole Earth Brands, Inc. (NASDAQ:FREE). Rubric Capital Management had $17.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $16.4 million investment in the stock during the quarter. The other funds with brand new FREE positions are Marc Majzner’s Clearline Capital, Alec Litowitz and Ross Laser’s Magnetar Capital, and Gregg Moskowitz’s Interval Partners.

Let’s also examine hedge fund activity in other stocks similar to Whole Earth Brands, Inc. (NASDAQ:FREE). These stocks are Beazer Homes USA, Inc. (NYSE:BZH), QEP Resources Inc (NYSE:QEP), Orchid Island Capital, Inc. (NYSE:ORC), Seneca Foods Corp (NASDAQ:SENEA), Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Tellurian Inc. (NASDAQ:TELL), and Bonanza Creek Energy Inc (NYSE:BCEI). All of these stocks’ market caps are closest to FREE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BZH 19 40735 7
QEP 19 33027 4
ORC 4 12806 -4
SENEA 9 23833 2
RIGL 18 69169 4
TELL 4 2971 -2
BCEI 15 47984 2
Average 12.6 32932 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $78 million in FREE’s case. Beazer Homes USA, Inc. (NYSE:BZH) is the most popular stock in this table. On the other hand Orchid Island Capital, Inc. (NYSE:ORC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Whole Earth Brands, Inc. (NASDAQ:FREE) is more popular among hedge funds. Our overall hedge fund sentiment score for FREE is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately FREE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FREE were disappointed as the stock returned 3.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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