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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Wendy's Company (NASDAQ:WEN) and determine whether hedge funds had an edge regarding this stock.
The Wendy's Company (NASDAQ:WEN) has seen a decrease in enthusiasm from smart money of late. The Wendy's Company (NASDAQ:WEN) was in 32 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. There were 35 hedge funds in our database with WEN positions at the end of the first quarter. Our calculations also showed that WEN isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
Today there are dozens of indicators stock traders put to use to appraise their holdings. A pair of the most useful indicators are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top money managers can trounce the market by a significant amount (see the details here).
Nelson Peltz of Trian Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Keeping this in mind we're going to analyze the fresh hedge fund action encompassing The Wendy's Company (NASDAQ:WEN).
How have hedgies been trading The Wendy's Company (NASDAQ:WEN)?
At Q2's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the first quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in WEN a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Trian Partners held the most valuable stake in The Wendy's Company (NASDAQ:WEN), which was worth $580 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $163.4 million worth of shares. Horizon Asset Management, Citadel Investment Group, and Arrowstreet 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 Clearfield Capital allocated the biggest weight to The Wendy's Company (NASDAQ:WEN), around 13.06% of its 13F portfolio. Trian Partners is also relatively very bullish on the stock, setting aside 12.02 percent of its 13F equity portfolio to WEN.
Because The Wendy's Company (NASDAQ:WEN) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that elected to cut their positions entirely last quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management cut the biggest position of the 750 funds monitored by Insider Monkey, totaling close to $16.2 million in stock. Kamyar Khajavi's fund, MIK Capital, also dumped its stock, about $10.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.
Let's go over hedge fund activity in other stocks similar to The Wendy's Company (NASDAQ:WEN). These stocks are Marathon Oil Corporation (NYSE:MRO), Jabil Inc. (NYSE:JBL), Woodward Inc (NASDAQ:WWD), Vir Biotechnology, Inc. (NASDAQ:VIR), Gerdau SA (NYSE:GGB), Shell Midstream Partners LP (NYSE:SHLX), and American Campus Communities, Inc. (NYSE:ACC). All of these stocks' market caps are similar to WEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRO,26,313727,2 JBL,31,375953,11 WWD,21,384120,-3 VIR,7,14975,3 GGB,10,123213,-2 SHLX,6,20644,2 ACC,26,364588,10 Average,18.1,228174,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $1107 million in WEN's case. Jabil Inc. (NYSE:JBL) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks The Wendy's Company (NASDAQ:WEN) is more popular among hedge funds. Our overall hedge fund sentiment score for WEN is 77.9. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Unfortunately WEN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WEN were disappointed as the stock returned 1.4% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.