Did Hedge Funds Make The Right Call On Yelp Inc (YELP) ?

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Yelp Inc (NYSE:YELP) and determine whether the smart money was really smart about this stock.

Is Yelp Inc (NYSE:YELP) going to take off soon? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 2 in recent months. Our calculations also showed that YELP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). YELP was in 25 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with YELP holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a large number of signals investors use to appraise stocks. Two of the most underrated signals are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best money managers can outclass their index-focused peers by a healthy amount (see the details here).

Donald Sussman of Paloma Partners

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a look at the latest hedge fund action regarding Yelp Inc (NYSE:YELP).

What does smart money think about Yelp Inc (NYSE:YELP)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in YELP over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of Yelp Inc (NYSE:YELP), with a stake worth $64.2 million reported as of the end of September. Trailing D E Shaw was Fisher Asset Management, which amassed a stake valued at $47.7 million. Steadfast Capital Management, Tenzing Global Investors, and Goodnow Investment Group 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 12.44% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, designating 3.02 percent of its 13F equity portfolio to YELP.

Due to the fact that Yelp Inc (NYSE:YELP) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of funds who sold off their positions entirely by the end of the first quarter. Intriguingly, C. Jonathan Gattman’s Cloverdale Capital Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising close to $5.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $1.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Yelp Inc (NYSE:YELP). We will take a look at Compass Minerals International, Inc. (NYSE:CMP), ICF International Inc (NASDAQ:ICFI), GCP Applied Technologies Inc. (NYSE:GCP), and Safety Insurance Group, Inc. (NASDAQ:SAFT). This group of stocks’ market valuations resemble YELP’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $236 million in YELP’s case. Compass Minerals International, Inc. (NYSE:CMP) is the most popular stock in this table. On the other hand ICF International Inc (NASDAQ:ICFI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Yelp Inc (NYSE:YELP) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on YELP as the stock returned 28.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.