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Reddit-Hedge Fund Battle Loser Candlestick Capital’s Top 10 Stock Holdings

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·8 min read
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In this article, we reviewed Candlestick's losses from short bets and examined the top 10 holdings to determine whether its stock portfolio has the potential to recover losses. Click to skip ahead and see Candlestick Capital's Top 5 Stock Holdings.

Candlestick Capital Management, founded by former Citadel portfolio manager Jack Woodruff, is among the hedge fund losers in a tug of war with Reddit’s day traders. The hedge fund, which started fiscal 2021 with almost $3 billion, fell at a low- to mid-teens range on its short bets for the year through Wednesday. The losses came after the firm has generated annual returns of 26% in 2020, thanks to its positions in consumer discretionary and consumer staples stocks. Several other hedge funds including Steve Cohen Point72 and Dan Sundheim’s D1 Capital have also lost significantly amid a buying frenzy fueled by retail day traders.

Along with other stocks, GameStop was among the main focus of Reddit’s WallStreetBets crew over the past couple of weeks. Other prominent short squeezed stocks include BlackBerry (NYSE:BB), AMC Entertainment (AMC) Express (EXPR), Bed Bath & Beyond (BBBY), Koss (KOSS), and Nokia (NOK).

Hedge funds have also started closing their positions despite losses as shares of short squeezed stocks are not cooling off. Citron Research's Andrew Left, for instance, stated on Wednesday that the firm has closed most of its short position at a loss of 100% when GameStop's stock traded around $90.

One of the most well-known short bets investment firms Melvin Capital Management, which received a huge emergency cash injection of $2.75 billion from Steven Cohen, Ken Griffin, and other partners, is down 30% year to date due to its short bets on GameStop and other stocks. Reddit's army has particularly targeted short bets of former star portfolio manager for Steven A. Cohen, Gabriel Plotkin. Melvin Capital, however, closed its GameStop positions this week (see Melvin Capital's Top 10 Stock Holdings).

Short-sellers' losses amounted to $5 billion in betting against GameStop alone, according to data from the financial-analytics firm S3 Partners. Steve Cohen's hedge fund lost almost 15% in 2021 due to bets on GameStop, while Sundheim’s D1 Capital Partners is down about 20%. D1 Capital was one of the best performing hedge funds last year.

Market Crash Candlestick Capital Jack Woodruff
Market Crash Candlestick Capital Jack Woodruff

Image By peshkov - Adobe Stock

Maplelane Capital, which started the year with $3.5 billion and has a track record of annualized 30% gains since inception, lost about 45% this year through Wednesday amid short bets.

Besides wrong short bets in 2021, Jack Woodruff’s Candlestick Capital Management has outperformed the broader market index last year and its position in consumer discretionary, consumer staples and information technology stocks are performing well since the beginning of this year.

Hedge fund industry's reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s start examining Candlestick's Top 10 stock holdings to determine whether its portfolio has the ability to recover losses it incurred on short bets. The hedge fund's top 10 holdings represent 31.77% of the portfolio.

10. Darden Restaurants Inc (NYSE: DRI)

Although Darden Restaurants (NYSE: DRI) performed well during the second half of 2020, shares of restaurant stock underperformed since the beginning of this year. Fortunately, the hedge fund has capitalized on the rally in 2020 by selling a 34% stake in the September quarter. DRI is the tenth largest stock holding of Candlestick Capital Management, accounting for 1.80% of the overall portfolio.

The market pundits are optimistic about the future performance of large restaurant stocks. "We expect large chains to capitalize on the digital transformation to drive top-line growth, more efficient 1x1 marketing, and strategy decisions. Strong and improving unit-level economics and share opportunities from independent restaurant closures in 2020 support unit development," Goldman Sachs said.

9. Keurig Dr Pepper Inc. (NASDAQ: KDP)

The beverage company Keurig Dr Pepper Inc. (NASDAQ: KDP) also underperformed compared to the tech-heavy NASDAQ and the broader market index in 2020 as well as during the first month of 2021. Its shares are up 13% in the last twelve months. KDP is the ninth-largest stock holding of Jack Woodruff’s hedge fund portfolio, accounting for 1.87% of the portfolio.

Oakmark Fund, which returned 6.2% for the third quarter, stated in an investor’s letter that Keurig Dr Pepper stock is trading at discount. Here is what Oakmark Funds stated:

“Keurig Dr Pepper is one of North America’s leading beverage companies and commands dominant positions in single-serve coffee and flavored sodas. We believe single-serve coffee pods will capture almost all of the incremental growth in at-home coffee consumption because coffee drinkers increasingly prefer K-Cups over drip brewing due to its greater convenience, quality, variety and value. Keurig’s competitive advantages (low-cost production, the largest installed base of brewers, exclusive brand partnerships) allow it to collect a toll on most pods sold in North America. The company’s soda franchises remain highly profitable, and we do not expect health-related concerns about sugar to materially impact consumption trends. We believe that Keurig’s brands should deliver steady growth, consistent market share gains and significant excess cash. We think the company is an above-average business trading at a meaningful discount to the broader market, its beverage peers and historical private market transactions.”

8. SeaWorld Entertainment, Inc. (NYSE: SEAS)

The hedge fund has used the dip in the theme park and entertainment company SeaWorld Entertainment, Inc. (NYSE: SEAS) stock price as buying opportunity and it appears that the strategy worked for the hedge fund. Jack Woodruff has initiated a position in SeaWorld during the second quarter and increased its stake by 7% during the September quarter. SeaWorld’s share price rallied almost 86% in the last six months.

The future fundamentals of SeaWorld improved significantly after coronavirus vaccine discovery. The company had posted a revenue drop of 77% for the September quarter.

7. Mastercard Incorporated (NYSE: MA)

The hedge funds strategy of buying Mastercard Incorporated (NYSE: MA) during the final quarter of 2019 didn’t work because shares of the payment technology company increased only 1.25% in the last twelve months. It is the seventh-largest stock holding of Candlestick’s 13F portfolio. However, the future fundamentals of Mastercard improved as international traveling resumed in the past couple of months.

Del Principe O’Brien Financial Advisors, which returned 8.9% for the third quarter, claimed that the dip in Mastercard stock price during last spring was a buying opportunity. Here is what Del Principe O’Brien Financial Advisors stated in an investors letter:

“The market pullback in the spring gave us a chance to become owners of Mastercard, one of the biggest players in the global payments industry. In fiscal year 2019, the company processed almost $5 trillion in purchase transactions and holds 29% of the global market share for credit cards and 24% of the global market for debit cards.

In June, Mastercard entered into an agreement to acquire Finicity, a financial data and insight provider, for a purchase price of $825 million. The move is meant to strengthen Mastercard’s existing open banking platform. Open banking is a system that gives third parties, including other banks and tech start-ups that provide financial services (think budgeting apps), digital access to financial data. A user-focused innovation in the banking industry, open banking is thought to be the future of banking. We see an active investment in its open banking platform as a good move for Mastercard toward maintaining its leadership in the global market.”

6. Coca-Cola European Partners plc (NYSE: CCEP)

Jack Woodruff’s strategy of buying Coca-Cola European Partners plc (NYSE: CCEP) stock during the pandemic related selloff worked for the hedge fund. Candlestick Capital Management has initiated a position in Coca-Cola European Partners during the second quarter and increased its stake by 90% during the September quarter. It is the sixth-largest stock holding of Candlestick’s 13F stock portfolio, accounting for 1.96% of the overall portfolio.

Shares of Coca-Cola European Partners grew 29% in the last three months compared to S&P 500 growth of 15.79%. Coca-Cola European Partners produces, distributes, and sells a range of non-alcoholic ready-to-drink beverages.

Click to continue reading and see Candlestick Capital's Top 5 Stock Picks.

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Disclosure: No position. The article Candlestick's Top 10 Stock Holdings is originally published on Insider Monkey.