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 Papa John's International, Inc. (NASDAQ:PZZA).
Is PZZA a good stock to buy now? Money managers were becoming hopeful. The number of long hedge fund positions inched up by 4 recently. Papa John's International, Inc. (NASDAQ:PZZA) was in 38 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PZZA 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.
In the financial world there are numerous metrics shareholders can use to size up stocks. Some of the most innovative metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can outclass their index-focused peers by a significant margin (see the details here).
Ryan Frick Dorsal Capital
Ryan Frick of Dorsal Capital
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. With all of this in mind let's view the latest hedge fund action surrounding Papa John's International, Inc. (NASDAQ:PZZA).
Do Hedge Funds Think PZZA Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in PZZA over the last 21 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the largest position in Papa John's International, Inc. (NASDAQ:PZZA). Renaissance Technologies has a $108.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $62.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include Ryan Frick and Oliver Evans's Dorsal Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Stamina Capital Management allocated the biggest weight to Papa John's International, Inc. (NASDAQ:PZZA), around 5.21% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, earmarking 4.92 percent of its 13F equity portfolio to PZZA.
With a general bullishness amongst the heavyweights, key money managers have jumped into Papa John's International, Inc. (NASDAQ:PZZA) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the biggest position in Papa John's International, Inc. (NASDAQ:PZZA). Marshall Wace LLP had $9.5 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $5.7 million position during the quarter. The other funds with brand new PZZA positions are Dmitry Balyasny's Balyasny Asset Management, Joel Greenblatt's Gotham Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Papa John's International, Inc. (NASDAQ:PZZA) but similarly valued. We will take a look at Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), Innovative Industrial Properties, Inc. (NYSE:IIPR), National Health Investors Inc (NYSE:NHI), Coherent, Inc. (NASDAQ:COHR), Hecla Mining Company (NYSE:HL), ALLETE Inc (NYSE:ALE), and Energizer Holdings, Inc. (NYSE:ENR). This group of stocks' market valuations are closest to PZZA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNFP,22,48850,8 IIPR,20,235842,0 NHI,12,54916,-3 COHR,29,163652,-3 HL,17,43194,4 ALE,20,79507,-5 ENR,28,221150,3 Average,21.1,121016,0.6 [/table]
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $393 million in PZZA's case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Papa John's International, Inc. (NASDAQ:PZZA) is more popular among hedge funds. Our overall hedge fund sentiment score for PZZA is 89. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Unfortunately PZZA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PZZA were disappointed as the stock returned 10.3% since the end of the third quarter (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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