Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is Chegg Inc (NYSE:CHGG) a buy here? Hedge funds are absolutely getting more optimistic. The number of bullish hedge fund positions experienced an increase of 4 lately. There were 13 hedge funds in our database with CHGG holdings at the end of September. At the end of this article we will also compare CHGG to other stocks including Intrawest Resorts Holdings Inc (NYSE:SNOW), Endeavour Silver Corp. (CAN) (NYSE:EXK), and Vitamin Shoppe Inc (NYSE:VSI) to get a better sense of its popularity.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Now, let’s check out the fresh action encompassing Chegg Inc (NYSE:CHGG).
How are hedge funds trading Chegg Inc (NYSE:CHGG)?
Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CHGG over the last 5 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, PAR Capital Management, led by Paul Reeder and Edward Shapiro, holds the biggest position in Chegg Inc (NYSE:CHGG). PAR Capital Management has a $61.7 million position in the stock, comprising 0.9% of its 13F portfolio. The second most bullish fund manager is Act II Capital, led by Dennis Leibowitz, which holds a $7.2 million position; the fund has 5.3% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Renaissance Technologies, one of the largest hedge funds in the world, Peter A. Wright’s P.A.W. Capital Partners and Terence Hogan’s Addison Clark Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, key money managers were breaking ground themselves. G2 Investment Partners Management, led by Josh Goldberg, assembled the most outsized position in Chegg Inc (NYSE:CHGG). G2 Investment Partners Management had $1.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Mike Vranos’s Ellington, Israel Englander’s Millennium Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s go over 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 Intrawest Resorts Holdings Inc (NYSE:SNOW), Endeavour Silver Corp. (CAN) (NYSE:EXK), Vitamin Shoppe Inc (NYSE:VSI), and Chase Corporation (NYSEAMEX:CCF). This group of stocks’ market caps resemble CHGG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNOW | 10 | 36175 | 2 |
| EXK | 8 | 46891 | 1 |
| VSI | 13 | 132387 | -2 |
| CCF | 8 | 50602 | 3 |
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $85 million in CHGG’s case. Vitamin Shoppe Inc (NYSE:VSI) is the most popular stock in this table. On the other hand Endeavour Silver Corp. (CAN) (NYSE:EXK) is the least popular one with only 8 bullish hedge fund positions. Chegg Inc (NYSE:CHGG) shares the top spot with VSI. However, since both stocks have similar market caps and hedge fund position total in VSI is 50% more than their position in VSI, we are leaning towards VSI. CHGG also outperformed VSI in recent months and now trades at a richer forward valuation. That’s why we don’t think it is a good idea to initiate a new position in CHGG right now.
Disclosure: none
