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Did The Smart Money Get Brinker International, Inc. (EAT) Right?

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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Brinker International, Inc. (NYSE:EAT) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in Brinker International, Inc. (NYSE:EAT) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that EAT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Verve Therapeutics Inc. (NASDAQ:VERV), State Auto Financial Corporation (NASDAQ:STFC), and Nexgen Energy Ltd. (NYSE:NXE) to gather more data points.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a look at the latest hedge fund action surrounding Brinker International, Inc. (NYSE:EAT).

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

Do Hedge Funds Think EAT Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EAT over the last 25 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Brett Barakett's Tremblant Capital has the number one position in Brinker International, Inc. (NYSE:EAT), worth close to $70.2 million, amounting to 2.2% of its total 13F portfolio. On Tremblant Capital's heels is Robert Pohly of Samlyn Capital, with a $66.4 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Israel Englander's Millennium Management and Dov Gertzulin's DG Capital Management. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Brinker International, Inc. (NYSE:EAT), around 3.01% of its 13F portfolio. DG Capital Management is also relatively very bullish on the stock, dishing out 2.67 percent of its 13F equity portfolio to EAT.

Because Brinker International, Inc. (NYSE:EAT) has witnessed declining sentiment from the smart money, it's easy to see that there were a few hedge funds that slashed their entire stakes last quarter. Intriguingly, Matthew Hulsizer's PEAK6 Capital Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, worth about $10.5 million in stock, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund said goodbye to about $9.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Brinker International, Inc. (NYSE:EAT). We will take a look at Verve Therapeutics Inc. (NASDAQ:VERV), State Auto Financial Corporation (NASDAQ:STFC), Nexgen Energy Ltd. (NYSE:NXE), Forward Air Corporation (NASDAQ:FWRD), SomaLogic Inc. (NASDAQ:SLGC), O-I Glass, Inc. (NYSE:OI), and Glaukos Corporation (NYSE:GKOS). This group of stocks' market values are closest to EAT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VERV,17,571948,17 STFC,21,179319,16 NXE,19,60570,8 FWRD,15,299767,-4 SLGC,37,647590,37 OI,32,258993,8 GKOS,23,176344,4 Average,23.4,313504,12.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $284 million in EAT's case. SomaLogic Inc. (NASDAQ:SLGC) is the most popular stock in this table. On the other hand Forward Air Corporation (NASDAQ:FWRD) is the least popular one with only 15 bullish hedge fund positions. Brinker International, Inc. (NYSE:EAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EAT is 67.9. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EAT wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EAT were disappointed as the stock returned -32.3% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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