Is LYFT Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Lyft, Inc. (NASDAQ:LYFT).

Is LYFT stock a buy or sell? Lyft, Inc. (NASDAQ:LYFT) has seen an increase in activity from the world’s largest hedge funds recently. Lyft, Inc. (NASDAQ:LYFT) was in 52 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 71. There were 32 hedge funds in our database with LYFT positions at the end of the third quarter. Our calculations also showed that LYFT isn’t among the 30 most popular stocks among hedge funds (click for Q4 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’ 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).

Larry Robbins of Glenview Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind let’s analyze the recent hedge fund action surrounding Lyft, Inc. (NASDAQ:LYFT).

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

At the end of December, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 63% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in LYFT 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, Citadel Investment Group held the most valuable stake in Lyft, Inc. (NASDAQ:LYFT), which was worth $204.6 million at the end of the fourth quarter. On the second spot was Glenview Capital which amassed $101.4 million worth of shares. Millennium Management, Engle Capital, and Cavalry Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Engle Capital allocated the biggest weight to Lyft, Inc. (NASDAQ:LYFT), around 9.89% of its 13F portfolio. Cavalry Asset Management is also relatively very bullish on the stock, earmarking 4.97 percent of its 13F equity portfolio to LYFT.

Consequently, key hedge funds have jumped into Lyft, Inc. (NASDAQ:LYFT) headfirst. Engle Capital, managed by Jeffrey Hoffner, assembled the biggest position in Lyft, Inc. (NASDAQ:LYFT). Engle Capital had $68.8 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also made a $52.1 million investment in the stock during the quarter. The other funds with brand new LYFT positions are Philippe Laffont’s Coatue Management, David Cohen and Harold Levy’s Iridian Asset Management, and Bruce Emery’s Greenvale Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lyft, Inc. (NASDAQ:LYFT) but similarly valued. These stocks are MGM Resorts International (NYSE:MGM), Darden Restaurants, Inc. (NYSE:DRI), Regions Financial Corporation (NYSE:RF), Essex Property Trust Inc (NYSE:ESS), Caesars Entertainment Inc. (NASDAQ:CZR), CarMax Inc (NYSE:KMX), and Shinhan Financial Group Co., Ltd. (NYSE:SHG). This group of stocks’ market values resemble LYFT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1007 million. That figure was $1167 million in LYFT’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 7 bullish hedge fund positions. Lyft, Inc. (NASDAQ:LYFT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LYFT is 67.1. 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. 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 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on LYFT as the stock returned 35.5% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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