Is CDK Global Inc (NASDAQ:CDK) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is CDK Global Inc (NASDAQ:CDK) a healthy stock for your portfolio? Prominent investors are taking a bullish view. The number of long hedge fund positions moved up by 6 in recent months. Our calculations also showed that CDK isn’t among the 30 most popular stocks among hedge funds (view the video below). CDK was in 29 hedge funds’ portfolios at the end of the second quarter of 2019. There were 23 hedge funds in our database with CDK holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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. Let’s take a glance at the recent hedge fund action regarding CDK Global Inc (NASDAQ:CDK).
How are hedge funds trading CDK Global Inc (NASDAQ:CDK)?
At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the first quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in CDK a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Lakewood Capital Management held the most valuable stake in CDK Global Inc (NASDAQ:CDK), which was worth $126.8 million at the end of the second quarter. On the second spot was D E Shaw which amassed $73.1 million worth of shares. Moreover, AQR Capital Management, Arrowstreet Capital, and Two Sigma Advisors were also bullish on CDK Global Inc (NASDAQ:CDK), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Renaissance Technologies, established the largest position in CDK Global Inc (NASDAQ:CDK). Renaissance Technologies had $24.6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $3.6 million position during the quarter. The other funds with brand new CDK positions are Lee Ainslie’s Maverick Capital, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CDK Global Inc (NASDAQ:CDK) but similarly valued. We will take a look at Enable Midstream Partners LP (NYSE:ENBL), Texas Pacific Land Trust (NYSE:TPL), KT Corporation (NYSE:KT), and Adaptive Biotechnologies Corporation (NASDAQ:ADPT). This group of stocks’ market caps resemble CDK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENBL | 7 | 40315 | 2 |
| TPL | 16 | 1515971 | 5 |
| KT | 19 | 320612 | 0 |
| ADPT | 38 | 3181443 | 38 |
| Average | 20 | 1264585 | 11.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $1265 million. That figure was $432 million in CDK’s case. Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 7 bullish hedge fund positions. CDK Global Inc (NASDAQ:CDK) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately CDK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CDK were disappointed as the stock returned -2.4% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
