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Hedge Funds Cautiously Watching Denny’s Corporation (DENN)

In this article you are going to find out whether hedge funds think Denny’s Corporation (NASDAQ:DENN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Denny’s Corporation (NASDAQ:DENN) investors should pay attention to a decrease in enthusiasm from smart money lately. DENN was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with DENN holdings at the end of the previous quarter. Our calculations also showed that DENN 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’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.

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the latest hedge fund action surrounding Denny’s Corporation (NASDAQ:DENN).

Hedge fund activity in Denny’s Corporation (NASDAQ:DENN)

Heading into the second quarter of 2020, a total of 20 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, 19 hedge funds held shares or bullish call options in DENN a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is DENN A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Denny’s Corporation (NASDAQ:DENN), with a stake worth $18 million reported as of the end of September. Trailing Renaissance Technologies was Cardinal Capital, which amassed a stake valued at $13.2 million. Arrowstreet Capital, Two Sigma Advisors, and GAMCO Investors 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 Denny’s Corporation (NASDAQ:DENN), around 0.97% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.7 percent of its 13F equity portfolio to DENN.

Due to the fact that Denny’s Corporation (NASDAQ:DENN) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers who sold off their full holdings in the first quarter. At the top of the heap, Israel Englander’s Millennium Management cut the largest investment of all the hedgies monitored by Insider Monkey, worth close to $9.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $1.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. We will take a look at Bluegreen Vacations Corporation (NYSE:BXG), QCR Holdings, Inc. (NASDAQ:QCRH), Yintech Investment Holdings Limited (NASDAQ:YIN), and Prothena Corporation plc (NASDAQ:PRTA). All of these stocks’ market caps match DENN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BXG 7 2126 -1
QCRH 8 35271 -1
YIN 1 562 0
PRTA 20 214962 -3
Average 9 63230 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $51 million in DENN’s case. Prothena Corporation plc (NASDAQ:PRTA) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Denny’s Corporation (NASDAQ:DENN) 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on DENN as the stock returned 48% in Q2 (through June 17th) 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.