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Do Hedge Funds Love The Cheesecake Factory Incorporated (CAKE)?

Reymerlyn Martin

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of The Cheesecake Factory Incorporated (NASDAQ:CAKE) based on that data.

Is The Cheesecake Factory Incorporated (NASDAQ:CAKE) worth your attention right now? The smart money is selling. The number of long hedge fund bets decreased by 3 in recent months. Our calculations also showed that CAKE 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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_375529" align="aligncenter" width="600"] Mario Gabelli of GAMCO Investors[/caption]

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 gander at the latest hedge fund action encompassing The Cheesecake Factory Incorporated (NASDAQ:CAKE).

What have hedge funds been doing with The Cheesecake Factory Incorporated (NASDAQ:CAKE)?

At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CAKE over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Cheesecake Factory Incorporated (NASDAQ:CAKE) was held by Arrowstreet Capital, which reported holding $28.3 million worth of stock at the end of September. It was followed by GAMCO Investors with a $22.2 million position. Other investors bullish on the company included GLG Partners, D E Shaw, and AQR Capital Management. In terms of the portfolio weights assigned to each position Intrepid Capital Management allocated the biggest weight to The Cheesecake Factory Incorporated (NASDAQ:CAKE), around 0.78% of its 13F portfolio. Ellington is also relatively very bullish on the stock, earmarking 0.3 percent of its 13F equity portfolio to CAKE.

Due to the fact that The Cheesecake Factory Incorporated (NASDAQ:CAKE) has witnessed a decline in interest from the smart money, logic holds that there was a specific group of fund managers that slashed their full holdings in the third quarter. Interestingly, Lee Ainslie's Maverick Capital said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising about $13.9 million in stock, and John Tompkins's Tyvor Capital was right behind this move, as the fund sold off about $2.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let's check out hedge fund activity in other stocks similar to The Cheesecake Factory Incorporated (NASDAQ:CAKE). These stocks are Grupo Financiero Galicia S.A. (NASDAQ:GGAL), Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Terex Corporation (NYSE:TEX), and OSI Systems, Inc. (NASDAQ:OSIS). This group of stocks' market values match CAKE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GGAL,8,25672,-4 PPBI,8,45631,0 TEX,18,258694,3 OSIS,22,179941,9 Average,14,127485,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $116 million in CAKE's case. OSI Systems, Inc. (NASDAQ:OSIS) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 8 bullish hedge fund positions. The Cheesecake Factory Incorporated (NASDAQ:CAKE) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 CAKE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CAKE were disappointed as the stock returned 5.5% 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 many of these stocks already outperformed the market so far this year.

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

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