Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Nathan's Famous, Inc. (NASDAQ:NATH).
Nathan's Famous, Inc. (NASDAQ:NATH) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that NATH 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to review the recent hedge fund action encompassing Nathan's Famous, Inc. (NASDAQ:NATH).
How are hedge funds trading Nathan's Famous, Inc. (NASDAQ:NATH)?
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in NATH a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in Nathan's Famous, Inc. (NASDAQ:NATH). Renaissance Technologies has a $18.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Mario Gabelli of GAMCO Investors, with a $17.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, Noam Gottesman's GLG Partners and . In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Nathan's Famous, Inc. (NASDAQ:NATH), around 0.24% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.15 percent of its 13F equity portfolio to NATH.
Since Nathan's Famous, Inc. (NASDAQ:NATH) has faced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of funds that slashed their full holdings in the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace sold off the largest investment of the 750 funds tracked by Insider Monkey, valued at about $0.3 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dumped its stock, about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Nathan's Famous, Inc. (NASDAQ:NATH). These stocks are Irsa Inversiones y Rprsntcins SA (NYSE:IRS), BlueLinx Holdings Inc. (NYSE:BXC), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and Investors Title Company (NASDAQ:ITIC). This group of stocks' market valuations are closest to NATH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRS,10,23583,4 BXC,9,127445,2 CVTI,11,19949,-3 ITIC,4,38476,1 Average,8.5,52363,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $40 million in NATH's case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand Investors Title Company (NASDAQ:ITIC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Nathan's Famous, Inc. (NASDAQ:NATH) is even less popular than ITIC. Hedge funds dodged a bullet by taking a bearish stance towards NATH. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NATH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NATH investors were disappointed as the stock returned 4.2% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.