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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Hostess Brands, Inc. (NASDAQ:TWNK).
IsTWNK a good stock to buy? Hostess Brands, Inc. (NASDAQ:TWNK) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 37. TWNK investors should pay attention to an increase in hedge fund interest lately. There were 24 hedge funds in our database with TWNK holdings at the end of June. Our calculations also showed that TWNK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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 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.
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 gander at the recent hedge fund action surrounding Hostess Brands, Inc. (NASDAQ:TWNK).
Do Hedge Funds Think TWNK Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in TWNK a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Cardinal Capital was the largest shareholder of Hostess Brands, Inc. (NASDAQ:TWNK), with a stake worth $79.3 million reported as of the end of September. Trailing Cardinal Capital was Renaissance Technologies, which amassed a stake valued at $30.3 million. Armistice Capital, Millennium Management, and Aristeia Capital 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 Cardinal Capital allocated the biggest weight to Hostess Brands, Inc. (NASDAQ:TWNK), around 3.31% of its 13F portfolio. Fort Baker Capital Management is also relatively very bullish on the stock, setting aside 2.16 percent of its 13F equity portfolio to TWNK.
As industrywide interest jumped, specific money managers have jumped into Hostess Brands, Inc. (NASDAQ:TWNK) headfirst. AlphaCrest Capital Management, managed by Mika Toikka, assembled the largest position in Hostess Brands, Inc. (NASDAQ:TWNK). AlphaCrest Capital Management had $0.7 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new TWNK investors: Michael Gelband's ExodusPoint Capital, Qing Li's Sciencast Management, and Nick Thakore's Diametric Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hostess Brands, Inc. (NASDAQ:TWNK) but similarly valued. These stocks are Rent-A-Center Inc (NASDAQ:RCII), Noah Holdings Limited (NYSE:NOAH), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Forward Air Corporation (NASDAQ:FWRD), Sandstorm Gold Ltd. (NYSE:SAND), Healthcare Services Group, Inc. (NASDAQ:HCSG), and Owens & Minor, Inc. (NYSE:OMI). This group of stocks' market caps are similar to TWNK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCII,25,321966,6 NOAH,16,342412,-2 FLWS,23,144100,0 FWRD,15,118716,0 SAND,13,118878,-3 HCSG,23,130910,-4 OMI,19,233340,4 Average,19.1,201475,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $205 million in TWNK's case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand Sandstorm Gold Ltd. (NYSE:SAND) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Hostess Brands, Inc. (NASDAQ:TWNK) is more popular among hedge funds. Our overall hedge fund sentiment score for TWNK is 84.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on TWNK as the stock returned 12.2% since the end of September (through 12/18) 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.
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Disclosure: None. This article was originally published at Insider Monkey.