We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CDK Global Inc (NASDAQ:CDK).
CDK Global Inc (NASDAQ:CDK) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that CDK 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).
In the eyes of most market participants, hedge funds are viewed as worthless, outdated financial tools of yesteryear. While there are over 8000 funds in operation today, We hone in on the crème de la crème of this club, approximately 850 funds. It is estimated that this group of investors handle bulk of the smart money’s total capital, and by tracking their best picks, Insider Monkey has revealed many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jeffrey Gates of Gates Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding CDK Global Inc (NASDAQ:CDK).
What have hedge funds been doing with CDK Global Inc (NASDAQ:CDK)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in CDK a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in CDK Global Inc (NASDAQ:CDK) was held by Gates Capital Management, which reported holding $57.3 million worth of stock at the end of September. It was followed by International Value Advisers with a $55 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Lakewood Capital Management. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to CDK Global Inc (NASDAQ:CDK), around 3.65% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, dishing out 2.51 percent of its 13F equity portfolio to CDK.
Because CDK Global Inc (NASDAQ:CDK) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds who sold off their entire stakes last quarter. It’s worth mentioning that Brett Barakett’s Tremblant Capital cut the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $37.6 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $21.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CDK Global Inc (NASDAQ:CDK) but similarly valued. We will take a look at Ascendis Pharma A/S (NASDAQ:ASND), Sibanye Gold Ltd (NYSE:SBGL), The Gap Inc. (NYSE:GPS), and Pearson PLC (NYSE:PSO). This group of stocks’ market caps are closest to CDK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASND | 38 | 2756276 | 4 |
| SBGL | 13 | 187761 | -2 |
| GPS | 31 | 128423 | 4 |
| PSO | 5 | 4209 | 2 |
| Average | 21.75 | 769167 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $357 million in CDK’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 5 bullish hedge fund positions. CDK Global Inc (NASDAQ:CDK) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CDK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CDK were disappointed as the stock returned -35.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
