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Should You Avoid Jack in the Box Inc. (JACK)?

Reymerlyn Martin

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Jack in the Box Inc. (NASDAQ:JACK) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Jack in the Box Inc. (NASDAQ:JACK) shareholders have witnessed a decrease in enthusiasm from smart money of late. JACK was in 26 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 30 hedge funds in our database with JACK holdings at the end of the previous quarter. Our calculations also showed that JACK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In today’s marketplace there are tons of indicators market participants can use to grade publicly traded companies. A duo of the less utilized indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the best money managers can trounce the market by a healthy margin (see the details here).

[caption id="attachment_30594" align="aligncenter" width="400"] Barry Rosenstein of JANA Partners[/caption]

Barry Rosenstein JANA PARTNERS

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a peek at the fresh hedge fund action regarding Jack in the Box Inc. (NASDAQ:JACK).

What does smart money think about Jack in the Box Inc. (NASDAQ:JACK)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in JACK a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Jack in the Box Inc. (NASDAQ:JACK) was held by Millennium Management, which reported holding $105.2 million worth of stock at the end of September. It was followed by JANA Partners with a $52.5 million position. Other investors bullish on the company included Schonfeld Strategic Advisors, Citadel Investment Group, and Winton Capital Management. In terms of the portfolio weights assigned to each position JANA Partners allocated the biggest weight to Jack in the Box Inc. (NASDAQ:JACK), around 4.37% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, earmarking 1.24 percent of its 13F equity portfolio to JACK.

Seeing as Jack in the Box Inc. (NASDAQ:JACK) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of funds that decided to sell off their full holdings in the third quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $31.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dumped its stock, about $11.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Jack in the Box Inc. (NASDAQ:JACK). These stocks are OSI Systems, Inc. (NASDAQ:OSIS), Silicon Motion Technology Corp. (NASDAQ:SIMO), Primo Water Corporation (NYSE:COT), and Constellium SE (NYSE:CSTM). This group of stocks' market caps resemble JACK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSIS,20,90282,-5 SIMO,17,281949,2 COT,25,601347,-4 CSTM,50,429288,3 Average,28,350717,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $289 million in JACK's case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand Silicon Motion Technology Corp. (NASDAQ:SIMO) is the least popular one with only 17 bullish hedge fund positions. Jack in the Box Inc. (NASDAQ:JACK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately JACK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); JACK investors were disappointed as the stock returned -51.9% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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