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 (see why hell is coming).
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 Chegg Inc (NYSE:CHGG).
Is Chegg Inc (NYSE:CHGG) a first-rate stock to buy now? Hedge funds are buying. The number of bullish hedge fund bets moved up by 3 in recent months. Our calculations also showed that CHGG 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).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick 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. Now we’re going to check out the new hedge fund action surrounding Chegg Inc (NYSE:CHGG).
How have hedgies been trading Chegg Inc (NYSE:CHGG)?
Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHGG over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the biggest position in Chegg Inc (NYSE:CHGG). Sylebra Capital Management has a $129.5 million position in the stock, comprising 5.1% of its 13F portfolio. On Sylebra Capital Management’s heels is Polar Capital, led by Brian Ashford-Russell and Tim Woolley, holding a $40 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other professional money managers that are bullish consist of James Crichton’s Hitchwood Capital Management, Joe Milano’s Greenhouse Funds and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Act II Capital allocated the biggest weight to Chegg Inc (NYSE:CHGG), around 11.08% of its 13F portfolio. Selkirk Management is also relatively very bullish on the stock, setting aside 7.31 percent of its 13F equity portfolio to CHGG.
Consequently, key hedge funds were leading the bulls’ herd. Maverick Capital, managed by Lee Ainslie, assembled the most valuable position in Chegg Inc (NYSE:CHGG). Maverick Capital had $15.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $7.1 million position during the quarter. The following funds were also among the new CHGG investors: John Osterweis’s Osterweis Capital Management, James Chen’s Ovata Capital Management, and Ira Unschuld’s Brant Point Investment Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chegg Inc (NYSE:CHGG) but similarly valued. We will take a look at H&R Block, Inc. (NYSE:HRB), Intercorp Financial Services Inc. (NYSE:IFS), J2 Global Inc (NASDAQ:JCOM), and Copa Holdings, S.A. (NYSE:CPA). All of these stocks’ market caps are closest to CHGG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HRB | 30 | 420973 | 7 |
| IFS | 2 | 46514 | -1 |
| JCOM | 23 | 302223 | 4 |
| CPA | 22 | 402542 | 1 |
| Average | 19.25 | 293063 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $422 million in CHGG’s case. H&R Block, Inc. (NYSE:HRB) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Chegg Inc (NYSE:CHGG) is more popular among hedge funds. 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 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on CHGG as the stock returned -10.2% so far in Q1 (through March 25th) 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.
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.
