Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in GrubHub Inc (NYSE:GRUB)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in GrubHub Inc (NYSE:GRUB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GRUB to other stocks including Old Republic International Corporation (NYSE:ORI), BRF S.A. (NYSE:BRFS), and Charles River Laboratories International Inc. (NYSE:CRL) to get a better sense of its popularity. Our calculations also showed that GRUB isn’t among the 30 most popular stocks among hedge funds (view the video below).
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. We’re going to take a gander at the latest hedge fund action encompassing GrubHub Inc (NYSE:GRUB).
What does smart money think about GrubHub Inc (NYSE:GRUB)?
At Q2’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in GRUB over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pelham Capital was the largest shareholder of GrubHub Inc (NYSE:GRUB), with a stake worth $219.7 million reported as of the end of March. Trailing Pelham Capital was Lansdowne Partners, which amassed a stake valued at $178.5 million. Viking Global, Polar Capital, and Tremblant Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because GrubHub Inc (NYSE:GRUB) has faced a decline in interest from the smart money, we can see that there is a sect of fund managers who sold off their full holdings heading into Q3. Interestingly, Robert Pohly’s Samlyn Capital dropped the largest position of the 750 funds monitored by Insider Monkey, totaling close to $42.2 million in call options. Christian Leone’s fund, Luxor Capital Group, also sold off its call options, about $33 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as GrubHub Inc (NYSE:GRUB) but similarly valued. These stocks are Old Republic International Corporation (NYSE:ORI), BRF S.A. (NYSE:BRFS), Charles River Laboratories International Inc. (NYSE:CRL), and Robert Half International Inc. (NYSE:RHI). This group of stocks’ market caps match GRUB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORI | 21 | 413524 | 2 |
| BRFS | 13 | 124053 | 3 |
| CRL | 29 | 1066583 | 5 |
| RHI | 26 | 618890 | 1 |
| Average | 22.25 | 555763 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $808 million in GRUB’s case. Charles River Laboratories International Inc. (NYSE:CRL) is the most popular stock in this table. On the other hand BRF S.A. (NYSE:BRFS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks GrubHub Inc (NYSE:GRUB) is more popular among hedge funds. 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 GRUB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GRUB were disappointed as the stock returned -27.9% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
