We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Texas Roadhouse Inc (NASDAQ:TXRH) based on that data.
Texas Roadhouse Inc (NASDAQ:TXRH) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. TXRH investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 25 hedge funds in our database with TXRH holdings at the end of the previous quarter. Our calculations also showed that TXRH 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 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.
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 view the fresh hedge fund action regarding Texas Roadhouse Inc (NASDAQ:TXRH).
What does smart money think about Texas Roadhouse Inc (NASDAQ:TXRH)?
Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in TXRH a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Texas Roadhouse Inc (NASDAQ:TXRH), which was worth $78.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $47.8 million worth of shares. Two Sigma Advisors, GLG Partners, and Winton 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 Motley Fool Asset Management allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 0.51% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to TXRH.
Judging by the fact that Texas Roadhouse Inc (NASDAQ:TXRH) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their entire stakes last quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $18.1 million in stock, and Philippe Laffont’s Coatue Management was right behind this move, as the fund dumped about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Texas Roadhouse Inc (NASDAQ:TXRH) but similarly valued. These stocks are Q2 Holdings Inc (NYSE:QTWO), Umpqua Holdings Corp (NASDAQ:UMPQ), Sanderson Farms, Inc. (NASDAQ:SAFM), and Globant SA (NYSE:GLOB). This group of stocks’ market values are similar to TXRH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $238 million in TXRH’s case. Sanderson Farms, Inc. (NASDAQ:SAFM) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 16 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 5.5 percentage points. Hedge funds were also right about betting on TXRH, though not to the same extent, as the stock returned -19.5% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
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.