We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
eBay Inc (NASDAQ:EBAY) investors should pay attention to an increase in enthusiasm from smart money in recent months. EBAY was in 53 hedge funds’ portfolios at the end of the third quarter of 2019. There were 47 hedge funds in our database with EBAY holdings at the end of the previous quarter. Our calculations also showed that EBAY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the key hedge fund action regarding eBay Inc (NASDAQ:EBAY).
Hedge fund activity in eBay Inc (NASDAQ:EBAY)
At the end of the third quarter, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EBAY over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in eBay Inc (NASDAQ:EBAY) was held by Baupost Group, which reported holding $648.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $444.9 million position. Other investors bullish on the company included Elliott Management, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Bodenholm Capital allocated the biggest weight to eBay Inc (NASDAQ:EBAY), around 19.53% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, designating 9.67 percent of its 13F equity portfolio to EBAY.
As aggregate interest increased, some big names were breaking ground themselves. Chiron Investment Management, managed by Ryan Caldwell, assembled the biggest position in eBay Inc (NASDAQ:EBAY). Chiron Investment Management had $18.5 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $14.8 million position during the quarter. The following funds were also among the new EBAY investors: Benjamin A. Smith’s Laurion Capital Management, Minhua Zhang’s Weld Capital Management, and Brandon Haley’s Holocene Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as eBay Inc (NASDAQ:EBAY) but similarly valued. We will take a look at The Hershey Company (NYSE:HSY), Autodesk, Inc. (NASDAQ:ADSK), China Unicom (Hong Kong) Limited (NYSE:CHU), and Shopify Inc (NYSE:SHOP). All of these stocks’ market caps are closest to EBAY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HSY | 33 | 1103825 | 6 |
| ADSK | 45 | 2728142 | -11 |
| CHU | 8 | 65922 | 2 |
| SHOP | 34 | 2509650 | 8 |
| Average | 30 | 1601885 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1602 million. That figure was $3488 million in EBAY’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks eBay Inc (NASDAQ:EBAY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately EBAY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EBAY were disappointed as the stock returned 30.9% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
