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Hedge Funds Are Dumping Jack in the Box Inc. (JACK)

Reymerlyn Martin

Does Jack in the Box Inc. (NASDAQ:JACK) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Jack in the Box Inc. (NASDAQ:JACK) a marvelous stock to buy now? Hedge funds are taking a bearish view. The number of long hedge fund bets retreated by 4 lately. Our calculations also showed that JACK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30594" align="aligncenter" width="600"] Barry Rosenstein of JANA Partners[/caption]

Barry Rosenstein JANA PARTNERS

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action encompassing Jack in the Box Inc. (NASDAQ:JACK).

How are hedge funds trading Jack in the Box Inc. (NASDAQ:JACK)?

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in JACK a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

JACK_dec2019

Among these funds, Millennium Management held the most valuable stake in Jack in the Box Inc. (NASDAQ:JACK), which was worth $113.2 million at the end of the third quarter. On the second spot was JANA Partners which amassed $71.9 million worth of shares. Citadel Investment Group, Balyasny Asset Management, and Marshall Wace 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 JANA Partners allocated the biggest weight to Jack in the Box Inc. (NASDAQ:JACK), around 5.8% of its portfolio. Shellback Capital is also relatively very bullish on the stock, setting aside 2.48 percent of its 13F equity portfolio to JACK.

Due to the fact that Jack in the Box Inc. (NASDAQ:JACK) has experienced bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers that elected to cut their entire stakes in the third quarter. Intriguingly, Robert Pohly's Samlyn Capital dumped the largest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $40.8 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dumped about $16.6 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Jack in the Box Inc. (NASDAQ:JACK) but similarly valued. We will take a look at Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB), MakeMyTrip Limited (NASDAQ:MMYT), WSFS Financial Corporation (NASDAQ:WSFS), and LivePerson, Inc. (NASDAQ:LPSN). This group of stocks' market values resemble JACK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMAB,7,48367,0 MMYT,8,62829,-3 WSFS,10,168789,-5 LPSN,16,190487,-1 Average,10.25,117618,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $479 million in JACK's case. LivePerson, Inc. (NASDAQ:LPSN) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Jack in the Box Inc. (NASDAQ:JACK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately JACK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on JACK were disappointed as the stock returned -13% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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