Were Hedge Funds Right About DineEquity Inc (DIN)?

Reymerlyn Martin

Sat, May 9, 2020, 7:20 PM 6 min read

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of Dine Brands Global, Inc. (NYSE:DIN).

Dine Brands Global, Inc. (NYSE:DIN) has experienced an increase in enthusiasm from smart money of late. DIN was in 20 hedge funds' portfolios at the end of December. There were 17 hedge funds in our database with DIN holdings at the end of the previous quarter. Our calculations also showed that DIN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a glance at the new hedge fund action surrounding Dine Brands Global, Inc. (NYSE:DIN).

How have hedgies been trading Dine Brands Global, Inc. (NYSE:DIN)?

At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DIN over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Renaissance Technologies, founded by Jim Simons, holds the number one position in Dine Brands Global, Inc. (NYSE:DIN). Renaissance Technologies has a $69.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Glenn Fuhrman and John Phelan of MSD Capital, with a $61.9 million position; the fund has 74.9% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Mark Coe's Intrinsic Edge Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position MSD Capital allocated the biggest weight to Dine Brands Global, Inc. (NYSE:DIN), around 74.86% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to DIN.

Consequently, some big names have been driving this bullishness. Intrinsic Edge Capital, managed by Mark Coe, initiated the most outsized position in Dine Brands Global, Inc. (NYSE:DIN). Intrinsic Edge Capital had $17.3 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $2.6 million investment in the stock during the quarter. The following funds were also among the new DIN investors: Prem Watsa's Fairfax Financial Holdings, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, and Parvinder Thiara's Athanor Capital.

Let's now review hedge fund activity in other stocks similar to Dine Brands Global, Inc. (NYSE:DIN). These stocks are Sleep Number Corporation (NASDAQ:SNBR), Myovant Sciences Ltd. (NYSE:MYOV), Alliance Resource Partners, L.P. (NASDAQ:ARLP), and Atrion Corporation (NASDAQ:ATRI). This group of stocks' market values match DIN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNBR,20,190994,2 MYOV,10,66183,-6 ARLP,4,60275,-3 ATRI,15,90026,-2 Average,12.25,101870,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $178 million in DIN's case. Sleep Number Corporation (NASDAQ:SNBR) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 4 bullish hedge fund positions. Dine Brands Global, Inc. (NYSE:DIN) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately DIN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DIN were disappointed as the stock returned -50.9% during the same time period 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 many of these stocks already outperformed the market so far this year.