Should You Avoid Brinker International, Inc. (EAT)?

Is Brinker International, Inc. (NYSE:EAT) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Brinker International, Inc. (NYSE:EAT) a healthy stock for your portfolio? The smart money is becoming less hopeful. The number of bullish hedge fund bets retreated by 2 recently. Our calculations also showed that EAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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 check out the fresh hedge fund action encompassing Brinker International, Inc. (NYSE:EAT).

What does smart money think about Brinker International, Inc. (NYSE:EAT)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in EAT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

No of Hedge Funds with EAT Positions

The largest stake in Brinker International, Inc. (NYSE:EAT) was held by Arrowstreet Capital, which reported holding $60.6 million worth of stock at the end of September. It was followed by GLG Partners with a $30.2 million position. Other investors bullish on the company included Point72 Asset Management, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Harvest Capital Strategies allocated the biggest weight to Brinker International, Inc. (NYSE:EAT), around 4.92% of its portfolio. Diametric Capital is also relatively very bullish on the stock, dishing out 4.36 percent of its 13F equity portfolio to EAT.

Due to the fact that Brinker International, Inc. (NYSE:EAT) has faced falling interest from hedge fund managers, logic holds that there was a specific group of money managers that slashed their entire stakes by the end of the third quarter. At the top of the heap, Gregg Moskowitz’s Interval Partners cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth about $10.2 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund cut about $5.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Brinker International, Inc. (NYSE:EAT) but similarly valued. These stocks are ICF International Inc (NASDAQ:ICFI), MaxLinear, Inc. (NYSE:MXL), CNOOC Limited (NYSE:CEO), and PJT Partners Inc (NYSE:PJT). This group of stocks’ market valuations are similar to EAT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICFI 10 31687 -5
MXL 12 23578 5
CEO 15 206809 6
PJT 17 149204 2
Average 13.5 102820 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $232 million in EAT’s case. PJT Partners Inc (NYSE:PJT) is the most popular stock in this table. On the other hand ICF International Inc (NASDAQ:ICFI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Brinker International, Inc. (NYSE:EAT) is more popular among hedge funds. 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. 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 5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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