Is Hostess Brands, Inc. A Good Stock To Buy?

Is Hostess Brands, Inc. (Nasdaq: TWNK) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Hostess Brands, Inc. a first-rate investment today? The smart money is getting more bullish. The number of long hedge fund positions rose by 4 recently, therefore the company had 24 hedge funds with long positions at the end of the third quarter. Still, that number was far from enough for the stock to be included in the list of 30 most popular stocks among ALL hedge funds.

In the financial world, there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

HIGHBRIDGE CAPITAL MANAGEMENT

While gathering more data about Hostess Brands, Inc., we tracked Artko Capital’s Q3 2018 Commentary, in which this investment manager shares its views on the company. Here is that part of the report:

“Hostess Brands $5.75 October 2020 Warrants (TWNK) – We have been sellers of our position in the warrants of Hostess Brands throughout the last year at prices ranging from above $2.00 to a low of $1.20 and finally sold out of the rest of our position, which down to 1% of the portfolio at the end of the third quarter. This has been a successful investment for us, and we were able to realize most of the gains at higher, above $2.00 prices, and took a modest loss on the last silver. Hostess came charging hard out of the gate since coming back to market; picking up lost market share and driving revenues through the introduction of new products. However, with the recent senior management change, a competitive environment and a significantly stretched balanced sheet, the turnaround story seems to have played out and the company is no longer as undervalued relative to its competitors, especially in light of lackluster growth in the next few years. It is still an interesting story and we might be interested in coming back into the warrants in the future but, given the heavy index ownership and major Wall Street coverage, we believe at the present time our capital is better served by being committed to other, less covered opportunities.”

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