After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Papa John’s International, Inc. (NASDAQ:PZZA).
Papa John’s International, Inc. (NASDAQ:PZZA) was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. PZZA investors should pay attention to an increase in enthusiasm from smart money lately. There were 22 hedge funds in our database with PZZA holdings at the end of the previous quarter. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the key hedge fund action regarding Papa John’s International, Inc. (NASDAQ:PZZA).
How have hedgies been trading Papa John’s International, Inc. (NASDAQ:PZZA)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in PZZA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Legion Partners Asset Management held the most valuable stake in Papa John’s International, Inc. (NASDAQ:PZZA), which was worth $90.4 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $75.8 million worth of shares. Renaissance Technologies, Citadel Investment Group, and 13D 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 Legion Partners Asset Management allocated the biggest weight to Papa John’s International, Inc. (NASDAQ:PZZA), around 22.17% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, dishing out 8.95 percent of its 13F equity portfolio to PZZA.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Papa John’s International, Inc. (NASDAQ:PZZA) headfirst. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, established the most outsized position in Papa John’s International, Inc. (NASDAQ:PZZA). Dorsal Capital Management had $18.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $12.3 million investment in the stock during the quarter. The other funds with brand new PZZA positions are Principal Global Investors’s Columbus Circle Investors, Joseph Mathias’s Concourse Capital Management, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Papa John’s International, Inc. (NASDAQ:PZZA). These stocks are Arcosa, Inc. (NYSE:ACA), Focus Financial Partners Inc. (NASDAQ:FOCS), Fresh Del Monte Produce Inc (NYSE:FDP), and Global Net Lease, Inc. (NYSE:GNL). This group of stocks’ market values match PZZA’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 15 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $383 million in PZZA’s case. Arcosa, Inc. (NYSE:ACA) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 10 bullish hedge fund positions. Papa John’s International, Inc. (NASDAQ:PZZA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PZZA as the stock returned 21.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.