Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Texas Roadhouse Inc (NASDAQ:TXRH) based on that data and determine whether they were really smart about the stock.
Texas Roadhouse Inc (NASDAQ:TXRH) has experienced a decrease in enthusiasm from smart money recently. Texas Roadhouse Inc (NASDAQ:TXRH) was in 25 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. There were 27 hedge funds in our database with TXRH holdings at the end of March. Our calculations also showed that TXRH 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.
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 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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 to get excerpts of these letters in your inbox. Keeping this in mind we're going to go over the fresh hedge fund action encompassing Texas Roadhouse Inc (NASDAQ:TXRH).
Hedge fund activity in Texas Roadhouse Inc (NASDAQ:TXRH)
At second quarter's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in TXRH a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Melvin Capital Management was the largest shareholder of Texas Roadhouse Inc (NASDAQ:TXRH), with a stake worth $63.1 million reported as of the end of September. Trailing Melvin Capital Management was Arrowstreet Capital, which amassed a stake valued at $43.3 million. Candlestick Capital Management, Point72 Asset Management, and AQR Capital 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 Candlestick Capital Management allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 1.25% of its 13F portfolio. Melvin Capital Management is also relatively very bullish on the stock, designating 0.37 percent of its 13F equity portfolio to TXRH.
Because Texas Roadhouse Inc (NASDAQ:TXRH) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers that slashed their entire stakes heading into Q3. Intriguingly, Richard Merage's MIG Capital dropped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $13.1 million in stock, and Leon Shaulov's Maplelane Capital was right behind this move, as the fund cut about $7.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Texas Roadhouse Inc (NASDAQ:TXRH). We will take a look at Harley-Davidson, Inc. (NYSE:HOG), Halozyme Therapeutics, Inc. (NASDAQ:HALO), PS Business Parks Inc (NYSE:PSB), Emcor Group Inc (NYSE:EME), FibroGen Inc (NASDAQ:FGEN), Cirrus Logic, Inc. (NASDAQ:CRUS), and Silgan Holdings Inc. (NASDAQ:SLGN). All of these stocks' market caps are closest to TXRH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOG,30,392806,13 HALO,26,246712,3 PSB,20,123459,3 EME,29,191491,5 FGEN,25,310554,3 CRUS,33,315676,5 SLGN,19,183360,3 Average,26,252008,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $234 million in TXRH's case. Cirrus Logic, Inc. (NASDAQ:CRUS) is the most popular stock in this table. On the other hand Silgan Holdings Inc. (NASDAQ:SLGN) is the least popular one with only 19 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TXRH is 52.2. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on TXRH as the stock returned 14.1% since the end of June (through September 25th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.