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Is Hostess Brands, Inc. (TWNK) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Hostess Brands, Inc. (NASDAQ:TWNK)?

Hostess Brands, Inc. (NASDAQ:TWNK) shareholders have witnessed a decrease in hedge fund sentiment recently. Our calculations also showed that TWNK 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.

In the eyes of most shareholders, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are more than 8000 funds in operation today, Our researchers look at the crème de la crème of this group, around 850 funds. Most estimates calculate that this group of people direct the majority of all hedge funds’ total capital, and by paying attention to their first-class equity investments, Insider Monkey has revealed numerous investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this oneWe 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. Now let’s take a peek at the recent hedge fund action encompassing Hostess Brands, Inc. (NASDAQ:TWNK).

How are hedge funds trading Hostess Brands, Inc. (NASDAQ:TWNK)?

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in TWNK a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Cardinal Capital was the largest shareholder of Hostess Brands, Inc. (NASDAQ:TWNK), with a stake worth $68.1 million reported as of the end of September. Trailing Cardinal Capital was Millennium Management, which amassed a stake valued at $10.8 million. Armistice Capital, Renaissance Technologies, and D E Shaw 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 Cardinal Capital allocated the biggest weight to Hostess Brands, Inc. (NASDAQ:TWNK), around 3.35% of its 13F portfolio. Fort Baker Capital Management is also relatively very bullish on the stock, dishing out 2.84 percent of its 13F equity portfolio to TWNK.

Judging by the fact that Hostess Brands, Inc. (NASDAQ:TWNK) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers who sold off their full holdings heading into Q4. At the top of the heap, Brian Scudieri’s Kehrs Ridge Capital dropped the largest position of the “upper crust” of funds followed by Insider Monkey, worth about $3.5 million in stock. Philippe Laffont’s fund, Coatue Management, also dropped its stock, about $2.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 7 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hostess Brands, Inc. (NASDAQ:TWNK) but similarly valued. These stocks are Zymeworks Inc. (NYSE:ZYME), Gibraltar Industries Inc (NASDAQ:ROCK), Cimpress plc (NASDAQ:CMPR), and Ryder System, Inc. (NYSE:R). This group of stocks’ market valuations match TWNK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZYME 27 654899 3
ROCK 19 103608 -4
CMPR 19 269535 1
R 18 157531 -5
Average 20.75 296393 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $296 million. That figure was $166 million in TWNK’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Ryder System, Inc. (NYSE:R) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Hostess Brands, Inc. (NASDAQ:TWNK) is more popular among hedge funds. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately TWNK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TWNK were disappointed as the stock returned 13.3% during the second quarter (through the end of May) 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.