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Papa John’s International, Inc. (PZZA): Hedge Funds In Wait-and-See Mode

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Papa John’s International, Inc. (NASDAQ:PZZA).

Papa John’s International, Inc. (NASDAQ:PZZA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of June. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Brookdale Senior Living, Inc. (NYSE:BKD), PPDAI Group Inc. (NYSE:PPDF), and American Woodmark Corporation (NASDAQ:AMWD) to gather more data points. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are several formulas investors use to size up stocks. Two of the best formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the top investment managers can outclass the market by a healthy margin (see the details here).

PZZA_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the latest hedge fund action regarding Papa John’s International, Inc. (NASDAQ:PZZA).

How are hedge funds trading Papa John’s International, Inc. (NASDAQ:PZZA)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in PZZA a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Christopher S. Kiper Legion Partners Asset Management

Of the funds tracked by Insider Monkey, Bares Capital Management, managed by Brian Bares, holds the most valuable position in Papa John’s International, Inc. (NASDAQ:PZZA). Bares Capital Management has a $83.8 million position in the stock, comprising 2.3% of its 13F portfolio. The second largest stake is held by Ted White and Christopher Kiper of Legion Partners Asset Management, with a $77.2 million position; 19% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain Ken Griffin’s Citadel Investment Group, Dmitry Balyasny’s Balyasny Asset Management and Renaissance Technologies.

Because Papa John’s International, Inc. (NASDAQ:PZZA) has experienced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who were dropping their entire stakes last quarter. Intriguingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, totaling close to $9.1 million in call options. Gregg Moskowitz’s fund, Interval Partners, also dropped its call options, about $5.7 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Papa John’s International, Inc. (NASDAQ:PZZA) but similarly valued. We will take a look at Brookdale Senior Living, Inc. (NYSE:BKD), PPDAI Group Inc. (NYSE:PPDF), American Woodmark Corporation (NASDAQ:AMWD), and MRC Global Inc (NYSE:MRC). This group of stocks’ market valuations match PZZA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BKD 22 473004 -5
PPDF 7 9857 -5
AMWD 9 36128 -3
MRC 15 105613 -3
Average 13.25 156151 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $332 million in PZZA’s case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 7 bullish hedge fund positions. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this group together with Brookdale. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on PZZA as the stock returned 17.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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