After several tireless days we have finished crunching the numbers from nearly 817 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 Del Taco Restaurants Inc (NASDAQ:TACO).
Is TACO a good stock to buy now? Prominent investors were turning bullish. The number of bullish hedge fund positions increased by 3 in recent months. Del Taco Restaurants Inc (NASDAQ:TACO) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 26. Our calculations also showed that TACO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 S&P 500 ETFs by more than 66 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. 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a look at the fresh hedge fund action regarding Del Taco Restaurants Inc (NASDAQ:TACO).
Do Hedge Funds Think TACO Is A Good Stock To Buy Now?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in TACO a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Del Taco Restaurants Inc (NASDAQ:TACO). Arrowstreet Capital has a $4.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, founded by Jim Simons, which holds a $4.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism include John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Del Taco Restaurants Inc (NASDAQ:TACO), around 0.09% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to TACO.
Consequently, specific money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Del Taco Restaurants Inc (NASDAQ:TACO). Paloma Partners had $0.2 million invested in the company at the end of the quarter. Thomas Bailard’s Bailard Inc also initiated a $0.2 million position during the quarter. The only other fund with a brand new TACO position is Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Del Taco Restaurants Inc (NASDAQ:TACO) but similarly valued. These stocks are Ares Commercial Real Estate Corp (NYSE:ACRE), Noodles & Co (NASDAQ:NDLS), Oxford Immunotec Global PLC (NASDAQ:OXFD), GTT Communications Inc (NYSE:GTT), Innate Pharma S.A. (NASDAQ:IPHA), Griffin Industrial Realty, Inc. (NASDAQ:GRIF), and Gilat Satellite Networks Ltd. (NASDAQ:GILT). This group of stocks’ market valuations resemble TACO’s market valuation.
|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 10 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $21 million in TACO’s case. Oxford Immunotec Global PLC (NASDAQ:OXFD) is the most popular stock in this table. On the other hand Innate Pharma S.A. (NASDAQ:IPHA) is the least popular one with only 2 bullish hedge fund positions. Del Taco Restaurants Inc (NASDAQ:TACO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TACO is 61.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on TACO, though not to the same extent, as the stock returned 9.4% since Q3 (through December 14th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.