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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Denny's Corporation (NASDAQ:DENN).
Denny's Corporation (NASDAQ:DENN) shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. Denny's Corporation (NASDAQ:DENN) was in 20 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. There were 17 hedge funds in our database with DENN holdings at the end of December. Our calculations also showed that DENN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. You can subscribe to our free daily newsletter on our homepage. Now let's take a look at the key hedge fund action surrounding Denny's Corporation (NASDAQ:DENN).
Do Hedge Funds Think DENN Is A Good Stock To Buy Now?
At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in DENN a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Denny's Corporation (NASDAQ:DENN). Fisher Asset Management has a $41.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Fisher Asset Management's heels is Chuck Royce of Royce & Associates, with a $12.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Israel Englander's Millennium Management, Eli Cohen's Crescent Park Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Plaisance Capital allocated the biggest weight to Denny's Corporation (NASDAQ:DENN), around 3.03% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, dishing out 1.51 percent of its 13F equity portfolio to DENN.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Royce & Associates, managed by Chuck Royce, assembled the largest position in Denny's Corporation (NASDAQ:DENN). Royce & Associates had $12.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $5.1 million position during the quarter. The other funds with new positions in the stock are Mark Coe's Intrinsic Edge Capital, Dan Kozlowski's Plaisance Capital, and Dmitry Balyasny's Balyasny Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Denny's Corporation (NASDAQ:DENN). These stocks are Stock Yards Bancorp, Inc. (NASDAQ:SYBT), Huron Consulting Group Inc. (NASDAQ:HURN), Linx S.A. (NYSE:LINX), Sturm, Ruger & Company, Inc. (NYSE:RGR), 4D Molecular Therapeutics, Inc. (NASDAQ:FDMT), Vermilion Energy Inc (NYSE:VET), and QAD Inc. (NASDAQ:QADA). All of these stocks' market caps match DENN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYBT,5,6466,-1 HURN,8,23348,2 LINX,3,32779,-3 RGR,21,135456,4 FDMT,18,397954,-6 VET,10,25503,0 QADA,14,161878,-1 Average,11.3,111912,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $119 million in DENN's case. Sturm, Ruger & Company, Inc. (NYSE:RGR) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 3 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. Our overall hedge fund sentiment score for DENN is 81.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately DENN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DENN were disappointed as the stock returned -18.2% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.