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Were Hedge Funds Right About Souring On Denny’s Corporation (DENN)?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Denny’s Corporation (NASDAQ:DENN) and determine whether the smart money was really smart about this stock.

Is Denny’s Corporation (NASDAQ:DENN) a buy right now? The smart money was in a bearish mood. The number of bullish hedge fund bets fell by 1 recently. Our calculations also showed that DENN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). DENN was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with DENN positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are several metrics stock traders use to evaluate stocks. A couple of the most useful metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite investment managers can outpace their index-focused peers by a significant margin (see the details here).

Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a look at the recent hedge fund action regarding Denny’s Corporation (NASDAQ:DENN).

How have hedgies been trading Denny’s Corporation (NASDAQ:DENN)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DENN over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Denny’s Corporation (NASDAQ:DENN), which was worth $18 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $13.2 million worth of shares. Arrowstreet Capital, Two Sigma Advisors, and GAMCO Investors 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 Clearline Capital allocated the biggest weight to Denny’s Corporation (NASDAQ:DENN), around 0.97% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.7 percent of its 13F equity portfolio to DENN.

Judging by the fact that Denny’s Corporation (NASDAQ:DENN) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedgies that slashed their entire stakes last quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling about $9.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Denny’s Corporation (NASDAQ:DENN) but similarly valued. We will take a look at Bluegreen Vacations Corporation (NYSE:BXG), QCR Holdings, Inc. (NASDAQ:QCRH), Yintech Investment Holdings Limited (NASDAQ:YIN), and Prothena Corporation plc (NASDAQ:PRTA). This group of stocks’ market values are closest to DENN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BXG 7 2126 -1
QCRH 8 35271 -1
YIN 1 562 0
PRTA 20 214962 -3
Average 9 63230 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $51 million in DENN’s case. Prothena Corporation plc (NASDAQ:PRTA) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Denny’s Corporation (NASDAQ:DENN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately DENN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DENN were disappointed as the stock returned 12.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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