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Were Hedge Funds Right About Piling Into Freshpet Inc (FRPT)?

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 more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 28th, 2019. What do these smart investors think about Freshpet Inc (NASDAQ:FRPT)?

Freshpet Inc (NASDAQ:FRPT) has seen a decrease in support from the world’s most elite money managers lately. Our calculations also showed that FRPT isn’t among the 30 most popular stocks among hedge funds (see the video below). However, overall hedge fund sentiment towards the stock is still extremely bullish in comparison to similarly valued stocks.
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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

FRPT_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. Let’s analyze the recent hedge fund action regarding Freshpet Inc (NASDAQ:FRPT).

What have hedge funds been doing with Freshpet Inc (NASDAQ:FRPT)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in FRPT a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Jeffrey Talpins Element Capital

More specifically, Element Capital Management was the largest shareholder of Freshpet Inc (NASDAQ:FRPT), with a stake worth $28 million reported as of the end of March. Trailing Element Capital Management was Honeycomb Asset Management, which amassed a stake valued at $20.7 million. Driehaus Capital, Renaissance Technologies, and Rock Springs Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Freshpet Inc (NASDAQ:FRPT) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds that slashed their entire stakes by the end of the second quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management dumped the largest stake of all the hedgies monitored by Insider Monkey, worth close to $2.2 million in stock. Mike Vranos’s fund, Ellington, also dumped its stock, about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Freshpet Inc (NASDAQ:FRPT). We will take a look at Evoqua Water Technologies Corp. (NYSE:AQUA), SunPower Corporation (NASDAQ:SPWR), NOW Inc (NYSE:DNOW), and First Majestic Silver Corp (NYSE:AG). This group of stocks’ market values match FRPT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AQUA 13 116842 0
SPWR 10 72363 1
DNOW 11 87977 -3
AG 9 22805 1
Average 10.75 74997 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $157 million in FRPT’s case. Evoqua Water Technologies Corp. (NYSE:AQUA) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Freshpet Inc (NASDAQ:FRPT) is more popular among hedge funds. 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 FRPT as the stock returned 9.4% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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