In this article, we discuss the 10 stocks better than Zillow according to hedge funds. If you want to skip our detailed analysis of these stocks, go directly to the 5 Stocks Better than Zillow According to Hedge Funds.
Supply constraints and labor shortages have hit the market as a whole in recent months, slowing down the post-pandemic economic recovery. However, some stocks have been hit harder by these problems than others. For example, Zillow Group, Inc. (NASDAQ: Z), a digital real estate firm, announced in mid-October that it would not be buying any more homes for the home-flipping business as it struggles to meet pent-up repair demand on the homes it already owns. A spokesperson told Bloomberg that the firm was “beyond operational capacity”.
The home-flipping business of Zillow Group, Inc. (NASDAQ: Z) is powered by technology. The company calculates the estimated worth of homes based on certain preset algorithms, makes bids, and buys those homes. It then engages a crew to make repairs on the property and then sells it through the real estate platform it owns. Supply chain problems have hit the supplies it needs for repairs and labor shortages have resulted in a backlog that forced the company to halt new purchases, according to Bloomberg.
However, earlier this month, just before Zillow Group, Inc. (NASDAQ: Z) posted earnings for the third quarter, Bloomberg reported that the firm was planning to sell nearly 7,000 homes it owned for around $2.8 billion. The figure equated to an average selling price of $400,000 per home, well below the average listing price of such properties that stands at around $426,000. The report has naturally resulted in a mass selloff of the stock at the market, with shares falling 31% in five days. The firm also missed market estimates on earnings in the third quarter results.
Analysts, which had previously been bullish on Zillow Group, Inc. (NASDAQ: Z), also revised their ratings to reflect the negative sentiment around the stock. Bank of America analyst Nat Schindler questioned the capital allocation strategy of the firm and also outlined the possibility that the selling of the homes by the group might represent weakening confidence in the housing market. Finance expert Josh Brown, one of the biggest bulls, went as far as to say that there was something “horribly wrong” at the company.
Amid all the chaos, it is prudent to take a look at the hedge fund sentiment around the firm. At the end of the second quarter of 2021, 76 hedge funds in the database of Insider Monkey held stakes worth $5.2 billion in Zillow Group, Inc. (NASDAQ: Z), down from 82 in the preceding quarter worth $5.7 billion. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm ARK Investment Management is a leading shareholder in Zillow Group, Inc. (NASDAQ: Z) with 10 million shares worth more than $1.2 billion.
However, there are reports that Cathie Wood, the chief of ARK, has sold 4 million shares of the stock recently after initially buying the dip. Investors eager to check out some of the stocks that are better than Zillow Group, Inc. (NASDAQ: Z) according to hedge funds should focus their investing energies on Meta Platforms, Inc. (NASDAQ:FB), Alibaba Group Holding Limited (NYSE:BABA), and Salesforce.com, Inc. (NYSE:CRM), among others discussed in detail below.
Our Methodology
Here is our list of the 10 stocks better than Zillow Group, Inc. (NASDAQ: Z) according to hedge funds. All the firms listed below have a better hedge fund sentiment than Zillow. Only those that had 82 or more hedge funds with stakes in them at the end of the second quarter of 2021 were selected. Companies that operate online marketplaces and offer other software services were preferred for the list.
The hedge fund sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Stocks Better than Zillow According to Hedge Funds
10. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 85
Shopify Inc. (NYSE:SHOP) operates an ecommerce platform and offers related services to businesses. The stock has pulled back in recent days after third quarter earnings missed market estimates on earnings per share and revenue. Analysts believe the reopening of the economy and a change in consumer spending patterns have weighed on the company. Despite these near-term setbacks, Credit Suisse Timothy Chiodo has forecast that the firm is well-positioned to benefit from the intersection of software and payments.
Shopify Inc. (NYSE:SHOP) recently signed two blockbuster partnerships. One deal, with audio streaming firm Spotify, will make it easier for artists to use the platform. The other, with Microsoft, aims to provide merchants with more tools and incentives to use Shopify.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in Shopify Inc. (NYSE:SHOP) with 1.6 million shares worth more than $2.3 billion.
Just like Meta Platforms, Inc. (NASDAQ:FB), Alibaba Group Holding Limited (NYSE:BABA), and Salesforce.com, Inc. (NYSE:CRM), Shopify Inc. (NYSE:SHOP) is one of the stocks that elite investors are buying.
In its Q4 2020 investor letter, RGA Investment Advisors, an asset management firm, highlighted a few stocks and Shopify Inc. (NYSE:SHOP) was one of them. Here is what the fund said:
“While we are pleased with the results of these specific purchases, we made a huge mistake of omission at that time. This mistake will likely be one of the biggest we ever make in our careers. Specifically, we did deep work on Shopify and loved everything about the business qualitatively. Unfortunately, we ultimately found ourselves unable to get comfortable with the numbers.
We built our model up from the key performance indicators (KPIs) that drive revenues. Our last save of the model dated 8/3/2016 looked as follows: (Page 2). These numbers seemed right from everything we understood about the company. While we tend not to rely on sell-side consensus estimates before finishing our own workup of the business, we do give them a look once we feel comfortable with how we have approached our analysis as it is often helpful to get a sense of what the average participant in the market expects the business to do. With Shopify, the sell-side consensus was so far from where our numbers were shaking out, it seemed almost impossible that we were basing our analysis on the same underlying information. Our natural next step was thus to take the sell-side consensus data and work backwards to figure out the implied expectations on each of the key revenue drivers. Here is what the sell-side consensus looked like as at the time: (Page 2).
Shopify’s actual revenues for 2016-2018 ended up being $389m, $673m and $1,073m. In other words, not only were we justifiably far more optimistic than the consensus estimate, but we also were far too conservative in terms of how the company actually performed.
The nature of our job as securities analysts is to take calculated risks, in an uncertain world where the “true” answer is inherently unknowable before the fact. We operate in what many call an “efficient market” and subscribe to the belief that for the most part, markets are generally pretty efficient and it requires differentiated analysis to find a return above what the market can offer. So why did we pass on Shopify despite 1) deeply believing in the qualitative elements of the business; and, 2) seeing a meaningful gap between what we expected and the consensus expected? The answer is unfortunate but simple: we lacked confidence in ourselves. It was the first time we truly experienced such a stark divergence between our expectation and the consensus and the result was the inclination was to pound ourselves over the head with how dumb we must be, rather than the other way around. We also learned that the truly great companies use their strong business advantages, smart management and execution to raise the bar every step along the way. Obviously this is a cycle which cannot continue ad infinitum, but especially in instances where our qualitative work identifies the inherent strengths in the business and the numbers shake out to be quite fair, the consistent “raising of the bar” can be a potent driver for the stock.
Please do not judge us too harshly for our mistake on Shopify, for we have from the very beginning made one commitment above all else to both our clients and ourselves: that we will be better today than we were yesterday, and better tomorrow than we are today. While this mistake was quite costly, it ended up being a key confidence and process builder.”
9. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 87
Expedia Group, Inc. (NASDAQ:EXPE) operates as an online travel company. As virus restrictions ease across the world, the stock has soared, registering twelve month gains of more than 57%. Peter Kern, the CEO of the firm, recently revealed that the company plans to unify brands under one platform to offer customers a simpler user experience. Kern also said that the business travel forecast, which had been lagging due to the virus, was poised to register a strong recovery.
Goldman Sachs analyst Eric Sheridan recently initiated coverage of Expedia Group, Inc. (NASDAQ: EXPE) stock with a Buy rating and a price target of $185, underlining normalized growth, rising margins, and a better travel environment in a bullish investor note on the firm.
At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $5.9 billion in Expedia Group, Inc. (NASDAQ:EXPE), up from 86 in the previous quarter worth $6.1 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Expedia Group, Inc. (NASDAQ:EXPE) was one of them. Here is what the fund said:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Expedia were the actions the company took to extend out their balance sheets until travel resumed. It should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
8. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 91
ServiceNow, Inc. (NYSE:NOW) markets enterprise cloud computing solutions. The company recently beat market expectations on earnings per share and revenue in the third quarter by $0.16 and $30 million respectively, posting healthy subscription growth numbers that earned price target raises from analysts at Argus, Needham, and KeyBanc. Deutsche Bank also recently initiated the stock at a Buy rating with a price target of $820.
Last month, ServiceNow, Inc. (NYSE:NOW) had announced that it would be partnering with Celonis, a data processing firm, in a partnership that will combine the workflow platform of the former with the real-time process execution capabilities of the latter.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Lone Pine Capital is a leading shareholder in ServiceNow, Inc. (NYSE:NOW) with 2.4 million shares worth more than $1.3 billion.
In its Q1 2021 investor letter, Palm Capital, an asset management firm, highlighted a few stocks and ServiceNow, Inc. (NYSE:NOW) was one of them. Here is what the fund said:
“ServiceNow provides software solutions to structure and automate various task and processes for large businesses. The company began in 2004 with a solution to help businesses manage the IT services they offer employees and customers. Unlike the existing solutions in the market, ServiceNow’s offering was built using modern architecture that was flexible, modular, and user-friendly. And it left the incumbents – large companies such as BMC, IBM and MicroFocus – playing catch up.
As the company grew to dominate this market, it saw the opportunity to expand its offering to include the broader task of IT Operations Management – or the monitoring and control of an entire business’s IT infrastructure. And over time its success in improving productivity and user experience in IT resulted in customers asking the company to expand its offering into other business workflows including HR Management and Customer Services – which it has since done.
All ServiceNow’s applications (including those built by customers and third parties) are built on its ‘Now’ platform. This allows the company and its customers to innovate and deploy new solutions quickly. And it helps ServiceNow gather a large amount of data to gain insights into and use machine learning to build solutions to meet customer needs in other areas. Crucially, this platform can interface with other SaaS and legacy software services used by its customers. Not only does this allow an IT department to manage all the myriad software services used by a business from a single point of control, it also reduces the operational disruption risk for those transitioning from legacy software systems to the cloud.
Aside from the ease of use of ServiceNow’s offerings, the other factor driving its growth is that its ‘land and expand’ strategy starts in the IT department of customers – the very department whose task it is to recommend other software solutions for businesses. It is therefore no surprise that more than 75% of ServiceNow’s customers use more than one of its products and 80% of its new business is from existing clients.
The company now serves…”[read the entire letter here]
7. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 98
Twilio Inc. (NYSE:TWLO) owns and operates a cloud communications platform. Even though the share price of the firm has fallen in the past few weeks, Summit Insights analyst Srini Nandury has a Buy rating on the stock with a $450 price target. Nandury revealed in an investor note recently that he expected the company to grow 30% for the next several years, noting that the recent pullback in the share price was a “buying opportunity”.
Twilio Inc. (NYSE:TWLO) smashed analyst estimates on earnings in the third quarter results and was named among a list of top software ideas in the market by investment advisory Baird in late October. It has a market cap of over $53 billion.
Among the hedge funds being tracked by Insider Monkey, California-based investment firm SCGE Management is a leading shareholder in Twilio Inc. (NYSE: TWLO) with 2.7 million shares worth more than $1 billion.
6. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 100
Booking Holdings Inc. (NASDAQ:BKNG) stock has returned over 42% to investors in the past year as virus restrictions ease and the travel industry springs back to life. The company provides travel and restaurant reservation services. The stock has earned price target raises from Truist, Wedbush, Bank of America, and JPM Securities in the last few days after posting market-beating earnings for the third quarter.
Booking Holdings Inc. (NASDAQ:BKNG) stock has also soared because there is an increased optimism around the post-pandemic recovery in the US following reports that nine states in the US, previously designated virus hotspots, were reporting fewer cases and hospitalizations.
At the end of the second quarter of 2021, 100 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Booking Holdings Inc. (NASDAQ:BKNG), down from 103 in the previous quarter worth $6.8 billion.
In addition to Meta Platforms, Inc. (NASDAQ:FB), Alibaba Group Holding Limited (NYSE:BABA), and Salesforce.com, Inc. (NYSE:CRM), Booking Holdings Inc. (NASDAQ:BKNG) is one of the stocks that is attracting the attention of institutional investors.
In its Q2 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Booking Holdings Inc. (NASDAQ:BKNG) was one of them. Here is what the fund said:
“In the consumer discretionary sector, we trimmed pandemic winners in favor of companies we believe will outperform in a recovery period. Pent-up travel demand is another investment theme we believe will flourish, prompting us to buy a position in Booking Holdings (tkr: BKNG, see Featured Equity).”
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Disclosure. None. 10 Stocks Better than Zillow (Z) According to Hedge Funds is originally published on Insider Monkey.
