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 Brinker International, Inc. (NYSE:EAT) based on that data.
Is Brinker International, Inc. (NYSE:EAT) a bargain? The best stock pickers are getting less bullish. The number of long hedge fund positions shrunk by 8 lately. Our calculations also showed that EAT 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). EAT was in 21 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with EAT positions at the end of the previous quarter.
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, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the new hedge fund action surrounding Brinker International, Inc. (NYSE:EAT).
How have hedgies been trading Brinker International, Inc. (NYSE:EAT)?
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the third quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in EAT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Brinker International, Inc. (NYSE:EAT). Arrowstreet Capital has a $54.7 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is GLG Partners, led by Noam Gottesman, holding a $20.9 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism include Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Schonfeld Strategic Advisors. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Brinker International, Inc. (NYSE:EAT), around 3.45% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, designating 1.49 percent of its 13F equity portfolio to EAT.
Due to the fact that Brinker International, Inc. (NYSE:EAT) has witnessed a decline in interest from the smart money, we can see that there was a specific group of funds who were dropping their full holdings in the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the largest investment of all the hedgies followed by Insider Monkey, valued at about $25.1 million in stock, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund sold off about $11.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 8 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brinker International, Inc. (NYSE:EAT) but similarly valued. These stocks are Huron Consulting Group (NASDAQ:HURN), BioTelemetry, Inc. (NASDAQ:BEAT), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), and STAAR Surgical Company (NASDAQ:STAA). All of these stocks’ market caps resemble EAT’s market cap.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $181 million in EAT’s case. STAAR Surgical Company (NASDAQ:STAA) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 8 bullish hedge fund positions. Brinker International, Inc. (NYSE:EAT) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately EAT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EAT were disappointed as the stock returned -70.8% 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.