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. Keeping this in mind, let’s take a look at whether LendingTree, Inc (NASDAQ:TREE) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is LendingTree, Inc (NASDAQ:TREE) a healthy stock for your portfolio? Investors who are in the know are getting more optimistic. The number of long hedge fund bets rose by 3 lately. Our calculations also showed that TREE 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). TREE was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 23 hedge funds in our database with TREE holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Reeder of PAR Capital Management
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 let’s review the recent hedge fund action surrounding LendingTree, Inc (NASDAQ:TREE).
What does smart money think about LendingTree, Inc (NASDAQ:TREE)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TREE over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in LendingTree, Inc (NASDAQ:TREE). Citadel Investment Group has a $24.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $17.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism contain Josh Goldberg’s G2 Investment Partners Management, Paul Reeder and Edward Shapiro’s PAR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to LendingTree, Inc (NASDAQ:TREE), around 2.76% of its 13F portfolio. P.A.W. CAPITAL PARTNERS is also relatively very bullish on the stock, dishing out 1.29 percent of its 13F equity portfolio to TREE.
As aggregate interest increased, key hedge funds were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, assembled the most valuable position in LendingTree, Inc (NASDAQ:TREE). Alyeska Investment Group had $7.4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $5.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, John Osterweis’s Osterweis Capital Management, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as LendingTree, Inc (NASDAQ:TREE) but similarly valued. We will take a look at Blueprint Medicines Corporation (NASDAQ:BPMC), CarGurus, Inc. (NASDAQ:CARG), HUYA Inc. (NYSE:HUYA), and United Bankshares, Inc. (NASDAQ:UBSI). This group of stocks’ market valuations resemble TREE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BPMC | 37 | 786766 | 10 |
| CARG | 33 | 936090 | 11 |
| HUYA | 21 | 305224 | -1 |
| UBSI | 18 | 51802 | 7 |
| Average | 27.25 | 519971 | 6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $104 million in TREE’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only 18 bullish hedge fund positions. LendingTree, Inc (NASDAQ:TREE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately TREE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TREE investors were disappointed as the stock returned -34.2% 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 most of these stocks already outperformed the market in Q1.
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.
