How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Cazoo Group Ltd (NYSE:CZOO) and determine whether hedge funds had an edge regarding this stock.
Is Cazoo Group Ltd (NYSE:CZOO) ready to rally soon? Prominent investors were turning bullish. The number of long hedge fund bets increased by 32 lately. Cazoo Group Ltd (NYSE:CZOO) was in 32 hedge funds’ portfolios at the end of the third quarter of 2021. Our calculations also showed that CZOO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the fresh hedge fund action regarding Cazoo Group Ltd (NYSE:CZOO).
Daniel Sundheim of D1 Capital
Do Hedge Funds Think CZOO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CZOO over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D1 Capital Partners was the largest shareholder of Cazoo Group Ltd (NYSE:CZOO), with a stake worth $77.7 million reported as of the end of September. Trailing D1 Capital Partners was Pelham Capital, which amassed a stake valued at $46.6 million. Marcho Partners, Samlyn Capital, and MIC Capital Partners 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 MIC Capital Partners allocated the biggest weight to Cazoo Group Ltd (NYSE:CZOO), around 3.69% of its 13F portfolio. Pelham Capital is also relatively very bullish on the stock, earmarking 2.58 percent of its 13F equity portfolio to CZOO.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. D1 Capital Partners, managed by Daniel Sundheim, created the largest position in Cazoo Group Ltd (NYSE:CZOO). D1 Capital Partners had $77.7 million invested in the company at the end of the quarter. Ross Turner’s Pelham Capital also made a $46.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Carl Anderson’s Marcho Partners, Robert Pohly’s Samlyn Capital, and Mubadala Investment’s MIC Capital Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cazoo Group Ltd (NYSE:CZOO) but similarly valued. We will take a look at Louisiana-Pacific Corporation (NYSE:LPX), ZIM Integrated Shipping Services Ltd. (NYSE:ZIM), Duck Creek Technologies, Inc. (NASDAQ:DCT), eXp World Holdings, Inc. (NASDAQ:EXPI), WESCO International, Inc. (NYSE:WCC), Everbridge, Inc. (NASDAQ:EVBG), and Integra Lifesciences Holdings Corp (NASDAQ:IART). This group of stocks’ market caps match CZOO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LPX | 36 | 670576 | -3 |
| ZIM | 22 | 552565 | -3 |
| DCT | 17 | 234874 | -1 |
| EXPI | 22 | 107817 | 4 |
| WCC | 27 | 1174272 | 4 |
| EVBG | 23 | 1307891 | -3 |
| IART | 17 | 82913 | -2 |
| Average | 23.4 | 590130 | -0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $590 million. That figure was $312 million in CZOO’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Duck Creek Technologies, Inc. (NASDAQ:DCT) is the least popular one with only 17 bullish hedge fund positions. Cazoo Group Ltd (NYSE:CZOO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CZOO is 73.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, CZOO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CZOO were disappointed as the stock returned -39% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
