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Were Hedge Funds Right About The Wendy’s Company (WEN)?

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·6 min read
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As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about The Wendy's Company (NASDAQ:WEN).

Is The Wendy's Company (NASDAQ:WEN) an exceptional investment now? Prominent investors were becoming more confident. The number of long hedge fund positions advanced by 4 lately. The Wendy's Company (NASDAQ:WEN) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistic is 37. Our calculations also showed that WEN isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.


Nelson Peltz of Trian Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's check out the key hedge fund action regarding The Wendy's Company (NASDAQ:WEN).

Do Hedge Funds Think WEN Is A Good Stock To Buy Now?

At second quarter's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WEN over the last 24 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings 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 $623.7 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $95.5 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Horizon Asset 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 Trian Partners allocated the biggest weight to The Wendy's Company (NASDAQ:WEN), around 7.29% of its 13F portfolio. Dorsal Capital Management is also relatively very bullish on the stock, dishing out 1.09 percent of its 13F equity portfolio to WEN.

As industrywide interest jumped, specific money managers were leading the bulls' herd. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, created the biggest position in The Wendy's Company (NASDAQ:WEN). Dorsal Capital Management had $23.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $16.5 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Ray Dalio's Bridgewater Associates, and Renee Yao's Neo Ivy Capital.

Let's check out hedge fund activity in other stocks similar to The Wendy's Company (NASDAQ:WEN). These stocks are Altair Engineering Inc. (NASDAQ:ALTR), Alliance Data Systems Corporation (NYSE:ADS), Cyberark Software Ltd (NASDAQ:CYBR), Driven Brands Holdings Inc. (NASDAQ:DRVN), ZIM Integrated Shipping Services Ltd. (NYSE:ZIM), ChampionX Corporation (NASDAQ:CHX), and WESCO International, Inc. (NYSE:WCC). This group of stocks' market caps are closest to WEN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALTR,18,620134,0 ADS,34,1338720,-2 CYBR,27,502082,-5 DRVN,19,91484,1 ZIM,25,327039,11 CHX,30,525472,2 WCC,23,1196955,-5 Average,25.1,657412,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $657 million. That figure was $1070 million in WEN's case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 18 bullish hedge fund positions. The Wendy's Company (NASDAQ:WEN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WEN is 70.8. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately WEN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WEN were disappointed as the stock returned -2.4% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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