Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Hedge fund interest in Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CBRL to other stocks including Antero Midstream Corp (NYSE:AM), OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), and Community Bank System, Inc. (NYSE:CBU) to get a better sense of its popularity.
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 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 S&P 500 ETFs by 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 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.
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL).
What does smart money think about Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in CBRL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), which was worth $36.2 million at the end of the third quarter. On the second spot was PEAK6 Capital Management which amassed $30.1 million worth of shares. Arrowstreet Capital, Citadel Investment Group, 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 TwinBeech Capital allocated the biggest weight to Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), around 0.42% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to CBRL.
Due to the fact that Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) has experienced bearish sentiment from the smart money, it’s safe to say that there were a few funds who were dropping their full holdings by the end of the third quarter. Interestingly, Israel Englander’s Millennium Management sold off the largest investment of all the hedgies followed by Insider Monkey, worth about $13.1 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dumped about $2.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) but similarly valued. We will take a look at Antero Midstream Corp (NYSE:AM), OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Community Bank System, Inc. (NYSE:CBU), and Ingevity Corporation (NYSE:NGVT). This group of stocks’ market values resemble CBRL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AM | 14 | 144307 | -2 |
| OCFT | 9 | 14809 | 9 |
| CBU | 10 | 18225 | -5 |
| NGVT | 27 | 158927 | 1 |
| Average | 15 | 84067 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $156 million in CBRL’s case. Ingevity Corporation (NYSE:NGVT) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 9 bullish hedge fund positions. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) 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. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CBRL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CBRL were disappointed as the stock returned -39.5% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.
