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 Fiesta Restaurant Group Inc (NASDAQ:FRGI).
Is FRGI a good stock to buy now? Hedge fund interest in Fiesta Restaurant Group Inc (NASDAQ:FRGI) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that FRGI 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). At the end of this article we will also compare FRGI to other stocks including Evelo Biosciences, Inc. (NASDAQ:EVLO), HOOKIPA Pharma Inc. (NASDAQ:HOOK), and Rimini Street, Inc. (NASDAQ:RMNI) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a glance at the key hedge fund action surrounding Fiesta Restaurant Group Inc (NASDAQ:FRGI).
Do Hedge Funds Think FRGI Is A Good Stock To Buy Now?
At the end of September, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FRGI over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Leucadia National held the most valuable stake in Fiesta Restaurant Group Inc (NASDAQ:FRGI), which was worth $49.3 million at the end of the third quarter. On the second spot was AREX Capital Management which amassed $23.5 million worth of shares. Private Capital Management, D E Shaw, and Renaissance Technologies 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 Leucadia National allocated the biggest weight to Fiesta Restaurant Group Inc (NASDAQ:FRGI), around 35.03% of its 13F portfolio. AREX Capital Management is also relatively very bullish on the stock, dishing out 15.08 percent of its 13F equity portfolio to FRGI.
Since Fiesta Restaurant Group Inc (NASDAQ:FRGI) has experienced a decline in interest from the smart money, we can see that there exists a select few money managers that slashed their positions entirely in the third quarter. It's worth mentioning that David Harding's Winton Capital Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $1 million in stock. Parvinder Thiara's fund, Athanor Capital, also dropped its stock, about $0.3 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Fiesta Restaurant Group Inc (NASDAQ:FRGI) but similarly valued. These stocks are Evelo Biosciences, Inc. (NASDAQ:EVLO), HOOKIPA Pharma Inc. (NASDAQ:HOOK), Rimini Street, Inc. (NASDAQ:RMNI), NextCure, Inc. (NASDAQ:NXTC), Fidus Investment Corp (NASDAQ:FDUS), ProQR Therapeutics NV (NASDAQ:PRQR), and The Marcus Corporation (NYSE:MCS). All of these stocks' market caps are similar to FRGI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVLO,3,7804,-3 HOOK,7,34432,-2 RMNI,9,99016,1 NXTC,13,54862,-3 FDUS,5,6368,1 PRQR,5,39417,-2 MCS,13,14607,0 Average,7.9,36644,-1.1 [/table]
As you can see these stocks had an average of 7.9 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $100 million in FRGI's case. NextCure, Inc. (NASDAQ:NXTC) is the most popular stock in this table. On the other hand Evelo Biosciences, Inc. (NASDAQ:EVLO) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Fiesta Restaurant Group Inc (NASDAQ:FRGI) is more popular among hedge funds. Our overall hedge fund sentiment score for FRGI is 71.8. 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 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 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on FRGI as the stock returned 39.6% since the end of September (through 12/8) 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.
