Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Carvana Co. (NYSE:CVNA)? The smart money sentiment can provide an answer to this question.
Is Carvana Co. (NYSE:CVNA) the right pick for your portfolio? Investors who are in the know are buying. The number of long hedge fund positions increased by 4 lately. Our calculations also showed that CVNA isn’t among the 30 most popular stocks among hedge funds (view the video below). CVNA was in 45 hedge funds’ portfolios at the end of the second quarter of 2019. There were 41 hedge funds in our database with CVNA positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the latest hedge fund action encompassing Carvana Co. (NYSE:CVNA).
How have hedgies been trading Carvana Co. (NYSE:CVNA)?
Heading into the third quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in CVNA over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Spruce House Investment Management held the most valuable stake in Carvana Co. (NYSE:CVNA), which was worth $350.5 million at the end of the second quarter. On the second spot was Tiger Global Management LLC which amassed $177.2 million worth of shares. Moreover, CAS Investment Partners, 683 Capital Partners, and Goodnow Investment Group were also bullish on Carvana Co. (NYSE:CVNA), allocating a large percentage of their portfolios to this stock.
Now, key hedge funds have been driving this bullishness. Maplelane Capital, managed by Leon Shaulov, assembled the largest call position in Carvana Co. (NYSE:CVNA). Maplelane Capital had $15.6 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $14.1 million position during the quarter. The following funds were also among the new CVNA investors: Ted Kang’s Kylin Management, James Woodson Davis’s Woodson Capital Management, and Guy Shahar’s DSAM Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Carvana Co. (NYSE:CVNA) but similarly valued. These stocks are Cabot Oil & Gas Corporation (NYSE:COG), Brown & Brown, Inc. (NYSE:BRO), EPAM Systems Inc (NYSE:EPAM), and WestRock Company (NYSE:WRK). This group of stocks’ market caps match CVNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COG | 37 | 932105 | 5 |
| BRO | 21 | 759675 | 4 |
| EPAM | 23 | 261441 | 2 |
| WRK | 26 | 428562 | 3 |
| Average | 26.75 | 595446 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $595 million. That figure was $1801 million in CVNA’s case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand Brown & Brown, Inc. (NYSE:BRO) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Carvana Co. (NYSE:CVNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CVNA, though not to the same extent, as the stock returned 5.4% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
