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Hedge Funds Have Never Been This Bullish On Freshpet Inc (FRPT)

Asma UL Husna

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Freshpet Inc (NASDAQ:FRPT).

Freshpet Inc (NASDAQ:FRPT) investors should be aware of an increase in activity from the world's largest hedge funds lately. FRPT was in 25 hedge funds' portfolios at the end of the first quarter of 2019. There were 21 hedge funds in our database with FRPT positions at the end of the previous quarter. Our calculations also showed that FRPT isn't among the 30 most popular stocks among hedge funds.

According to most traders, hedge funds are seen as slow, old financial tools of yesteryear. While there are greater than 8000 funds in operation today, Our researchers look at the aristocrats of this club, approximately 750 funds. These hedge fund managers handle most of the smart money's total asset base, and by monitoring their unrivaled investments, Insider Monkey has deciphered a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

Jeffrey Talpins Element Capital

We're going to take a look at the key hedge fund action surrounding Freshpet Inc (NASDAQ:FRPT).

How are hedge funds trading Freshpet Inc (NASDAQ:FRPT)?

Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in FRPT 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.

FRPT_june2019

Among these funds, Driehaus Capital held the most valuable stake in Freshpet Inc (NASDAQ:FRPT), which was worth $19.5 million at the end of the first quarter. On the second spot was Element Capital Management which amassed $18.1 million worth of shares. Moreover, Renaissance Technologies, Rock Springs Capital Management, and Two Sigma Advisors were also bullish on Freshpet Inc (NASDAQ:FRPT), allocating a large percentage of their portfolios to this stock.

Consequently, key hedge funds have been driving this bullishness. Element Capital Management, managed by Jeffrey Talpins, created the biggest position in Freshpet Inc (NASDAQ:FRPT). Element Capital Management had $18.1 million invested in the company at the end of the quarter. Principal Global Investors's Columbus Circle Investors also initiated a $7.5 million position during the quarter. The other funds with brand new FRPT positions are Benjamin A. Smith's Laurion Capital Management, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Dmitry Balyasny's Balyasny Asset Management.

Let's check out hedge fund activity in other stocks similar to Freshpet Inc (NASDAQ:FRPT). These stocks are Eventbrite, Inc. (NYSE:EB), Wageworks Inc (NYSE:WAGE), Usa Compression Partners LP (NYSE:USAC), and SecureWorks Corp. (NASDAQ:SCWX). This group of stocks' market values resemble FRPT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EB,16,356225,8 WAGE,21,160164,8 USAC,5,9108,0 SCWX,12,34560,3 Average,13.5,140014,4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $118 million in FRPT's case. Wageworks Inc (NYSE:WAGE) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Freshpet Inc (NASDAQ:FRPT) 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. Hedge funds were also right about betting on FRPT as the stock returned 9.9% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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