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Hedge Funds Have Never Been This Bullish On The Cheesecake Factory Incorporated (CAKE)

Abigail Fisher

Is The Cheesecake Factory Incorporated (NASDAQ:CAKE) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

The Cheesecake Factory Incorporated (NASDAQ:CAKE) was in 25 hedge funds' portfolios at the end of March. CAKE investors should pay attention to an increase in hedge fund sentiment of late. There were 21 hedge funds in our database with CAKE positions at the end of the previous quarter. Our calculations also showed that CAKE isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

We're going to go over the fresh hedge fund action encompassing The Cheesecake Factory Incorporated (NASDAQ:CAKE).

Hedge fund activity in The Cheesecake Factory Incorporated (NASDAQ:CAKE)

Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CAKE over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

CAKE_june2019

More specifically, Arrowstreet Capital was the largest shareholder of The Cheesecake Factory Incorporated (NASDAQ:CAKE), with a stake worth $52.2 million reported as of the end of March. Trailing Arrowstreet Capital was GAMCO Investors, which amassed a stake valued at $28.1 million. Millennium Management, Maverick Capital, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Tyvor Capital, managed by John Tompkins, assembled the biggest position in The Cheesecake Factory Incorporated (NASDAQ:CAKE). Tyvor Capital had $15.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $3.4 million position during the quarter. The following funds were also among the new CAKE investors: Robert Rodriguez and Steven Romick's First Pacific Advisors LLC, Sander Gerber's Hudson Bay Capital Management, and Matthew Tewksbury's Stevens Capital Management.

Let's go over hedge fund activity in other stocks similar to The Cheesecake Factory Incorporated (NASDAQ:CAKE). These stocks are AMN Healthcare Services Inc (NYSE:AMN), Beacon Roofing Supply, Inc. (NASDAQ:BECN), Premier Inc (NASDAQ:PINC), and WSFS Financial Corporation (NASDAQ:WSFS). All of these stocks' market caps are similar to CAKE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMN,11,69095,-4 BECN,18,268055,-3 PINC,16,163277,-2 WSFS,20,178393,8 Average,16.25,169705,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $219 million in CAKE's case. WSFS Financial Corporation (NASDAQ:WSFS) is the most popular stock in this table. On the other hand AMN Healthcare Services Inc (NYSE:AMN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks The Cheesecake Factory Incorporated (NASDAQ:CAKE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 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 -9.5% during the same period 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 13 of these stocks already outperformed the market in Q2.

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

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