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Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 Shake Shack Inc (NYSE:SHAK).
Is SHAK stock a buy? Shake Shack Inc (NYSE:SHAK) was in 25 hedge funds' portfolios at the end of December. The all time high for this statistic is 29. SHAK has seen a decrease in activity from the world's largest hedge funds lately. There were 26 hedge funds in our database with SHAK positions at the end of the third quarter. Our calculations also showed that SHAK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a peek at the fresh hedge fund action regarding Shake Shack Inc (NYSE:SHAK).
Do Hedge Funds Think SHAK Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the third quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in SHAK a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, 12 West Capital Management held the most valuable stake in Shake Shack Inc (NYSE:SHAK), which was worth $237.6 million at the end of the fourth quarter. On the second spot was Select Equity Group which amassed $233.3 million worth of shares. Valiant Capital, Columbus Circle Investors, and Anomaly Capital 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 12 West Capital Management allocated the biggest weight to Shake Shack Inc (NYSE:SHAK), around 10.21% of its 13F portfolio. Bandera Partners is also relatively very bullish on the stock, dishing out 2.79 percent of its 13F equity portfolio to SHAK.
Judging by the fact that Shake Shack Inc (NYSE:SHAK) has witnessed falling interest from the smart money, it's safe to say that there was a specific group of hedge funds that decided to sell off their full holdings by the end of the fourth quarter. At the top of the heap, Ricky Sandler's Eminence Capital cut the largest position of the "upper crust" of funds monitored by Insider Monkey, worth close to $24.6 million in stock, and Philip Hilal's Clearfield Capital was right behind this move, as the fund cut about $10.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds by the end of the fourth quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Shake Shack Inc (NYSE:SHAK) but similarly valued. These stocks are Legend Biotech Corporation (NASDAQ:LEGN), Wintrust Financial Corporation (NASDAQ:WTFC), Seaboard Corporation (NYSE:SEB), Intellia Therapeutics, Inc. (NASDAQ:NTLA), Methanex Corporation (NASDAQ:MEOH), EQT Corporation (NYSE:EQT), and Sterling Bancorp (NYSE:STL). This group of stocks' market caps resemble SHAK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEGN,13,334716,0 WTFC,19,137643,-1 SEB,13,111127,-3 NTLA,30,835298,15 MEOH,12,111615,-4 EQT,43,355417,4 STL,19,305912,-6 Average,21.3,313104,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $619 million in SHAK's case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Methanex Corporation (NASDAQ:MEOH) is the least popular one with only 12 bullish hedge fund positions. Shake Shack Inc (NYSE:SHAK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHAK is 50.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on SHAK as the stock returned 29.9% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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