At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Franchise Group, Inc. (NASDAQ:FRG).
Is Franchise Group, Inc. (NASDAQ:FRG) a good investment right now? The best stock pickers are taking an optimistic view. The number of bullish hedge fund bets rose by 2 in recent months. Our calculations also showed that FRG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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_262336" align="aligncenter" width="399"] J. Carlo Cannell of Cannell Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the new hedge fund action surrounding Franchise Group, Inc. (NASDAQ:FRG).
How have hedgies been trading Franchise Group, Inc. (NASDAQ:FRG)?
Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FRG over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Nantahala Capital Management was the largest shareholder of Franchise Group, Inc. (NASDAQ:FRG), with a stake worth $16.7 million reported as of the end of September. Trailing Nantahala Capital Management was Cannell Capital, which amassed a stake valued at $13.4 million. Springbok Capital, Manatuck Hill Partners, and Millennium Management 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 Cannell Capital allocated the biggest weight to Franchise Group, Inc. (NASDAQ:FRG), around 5.57% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, setting aside 0.94 percent of its 13F equity portfolio to FRG.
Consequently, specific money managers have been driving this bullishness. Springbok Capital, managed by Gavin Saitowitz and Cisco J. del Valle, established the most outsized position in Franchise Group, Inc. (NASDAQ:FRG). Springbok Capital had $1.1 million invested in the company at the end of the quarter. Mark Broach's Manatuck Hill Partners also initiated a $1 million position during the quarter. The only other fund with a new position in the stock is Philip Hempleman's Ardsley Partners.
Let's now take a look at hedge fund activity in other stocks similar to Franchise Group, Inc. (NASDAQ:FRG). These stocks are SeaSpine Holdings Corp (NASDAQ:SPNE), GigCapital2, Inc. (NYSE:GIX), Daktronics, Inc. (NASDAQ:DAKT), and Spark Energy, Inc. (NASDAQ:SPKE). All of these stocks' market caps resemble FRG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPNE,19,31741,9 GIX,10,42372,1 DAKT,16,13300,3 SPKE,10,9894,-1 Average,13.75,24327,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $34 million in FRG's case. SeaSpine Holdings Corp (NASDAQ:SPNE) is the most popular stock in this table. On the other hand GigCapital2, Inc. (NYSE:GIX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Franchise Group, Inc. (NASDAQ:FRG) is even less popular than GIX. Hedge funds clearly dropped the ball on FRG as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on FRG as the stock returned 180.5% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.