Is CDK Stock A Buy or Sell?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of CDK Global Inc (NASDAQ:CDK).

Is CDK stock a buy? Money managers were getting less optimistic. The number of bullish hedge fund bets decreased by 1 lately. CDK Global Inc (NASDAQ:CDK) was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 45. Our calculations also showed that CDK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 28 hedge funds in our database with CDK positions at the end of the third quarter.

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. Hedge funds have more than $3 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to check out the key hedge fund action surrounding CDK Global Inc (NASDAQ:CDK).

Do Hedge Funds Think CDK Is A Good Stock To Buy Now?

At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CDK over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in CDK Global Inc (NASDAQ:CDK) was held by P2 Capital Partners, which reported holding $86.4 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $55.1 million position. Other investors bullish on the company included Citadel Investment Group, Makaira Partners, and Harbor Spring Capital. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to CDK Global Inc (NASDAQ:CDK), around 8.41% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, designating 5.86 percent of its 13F equity portfolio to CDK.

Since CDK Global Inc (NASDAQ:CDK) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there were a few hedgies that decided to sell off their full holdings last quarter. It’s worth mentioning that Jacob Rothschild’s RIT Capital Partners said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $7.4 million in stock. Anthony Bozza’s fund, Lakewood Capital Management, also cut its stock, about $7.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.

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 Reynolds Consumer Products Inc. (NASDAQ:REYN), CACI International Inc (NYSE:CACI), Cyberark Software Ltd (NASDAQ:CYBR), Jefferies Financial Group Inc. (NYSE:JEF), Blueprint Medicines Corporation (NASDAQ:BPMC), Grupo Aeroportuario del Pacifico (NYSE:PAC), and Lattice Semiconductor Corporation (NASDAQ:LSCC). This group of stocks’ market caps are closest to CDK’s market cap.

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As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $504 million. That figure was $392 million in CDK’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 4 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. Our overall hedge fund sentiment score for CDK is 55.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately CDK wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on CDK were disappointed as the stock returned 5.5% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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