In this article you are going to find out whether hedge funds think Shopify Inc (NYSE:SHOP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Shopify Inc (NYSE:SHOP) a good stock to buy now? Money managers were betting on the stock. The number of long hedge fund bets went up by 24 lately. Shopify Inc (NYSE:SHOP) was in 81 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 57 hedge funds in our database with SHOP holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Alex Sacerdote of Whale Rock Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Now we’re going to take a glance at the key hedge fund action encompassing Shopify Inc (NYSE:SHOP).
How are hedge funds trading Shopify Inc (NYSE:SHOP)?
At the end of September, a total of 81 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in SHOP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $1762.1 million reported as of the end of September. Trailing Lone Pine Capital was Citadel Investment Group, which amassed a stake valued at $1013.5 million. SCGE Management, Whale Rock Capital Management, and Arrowstreet Capital 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 Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 28.37% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, earmarking 14.25 percent of its 13F equity portfolio to SHOP.
As one would reasonably expect, key money managers have been driving this bullishness. GQG Partners, managed by Rajiv Jain, assembled the largest position in Shopify Inc (NYSE:SHOP). GQG Partners had $229.8 million invested in the company at the end of the quarter. Eashwar Krishnan’s Tybourne Capital Management also made a $152.9 million investment in the stock during the quarter. The following funds were also among the new SHOP investors: Brad Gerstner’s Altimeter Capital Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Amish Mehta’s SQN Investors.
Let’s also examine hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). These stocks are Royal Dutch Shell plc (NYSE:RDS), Philip Morris International Inc. (NYSE:PM), Honeywell International Inc. (NYSE:HON), International Business Machines Corp. (NYSE:IBM), BHP Group (NYSE:BBL), American Tower Corporation (NYSE:AMT), and Lockheed Martin Corporation (NYSE:LMT). This group of stocks’ market values are closest to SHOP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDS | 31 | 853456 | -3 |
| PM | 50 | 2639054 | -3 |
| HON | 41 | 970923 | -9 |
| IBM | 40 | 639210 | -6 |
| BBL | 16 | 830995 | -6 |
| AMT | 62 | 4611116 | 1 |
| LMT | 47 | 1664679 | -6 |
| Average | 41 | 1744205 | -4.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1744 million. That figure was $7515 million in SHOP’s case. American Tower Corporation (NYSE:AMT) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Shopify Inc (NYSE:SHOP) is more popular among hedge funds. Our overall hedge fund sentiment score for SHOP is 90. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Unfortunately SHOP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SHOP were disappointed as the stock returned 1.1% since the end of the third quarter (through 11/27) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
