At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Vroom, Inc. (NASDAQ:VRM).
Is VRM a good stock to buy? Vroom, Inc. (NASDAQ:VRM) has experienced an increase in activity from the world’s largest hedge funds recently. Vroom, Inc. (NASDAQ:VRM) was in 34 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 28 hedge funds in our database with VRM holdings at the end of June. Our calculations also showed that VRM 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).
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.
Richard Chilton of Chilton Investment Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis 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. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Vroom, Inc. (NASDAQ:VRM).
Do Hedge Funds Think VRM Is A Good Stock To Buy Now?
At the end of September, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards VRM over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Foxhaven Asset Management held the most valuable stake in Vroom, Inc. (NASDAQ:VRM), which was worth $117.6 million at the end of the third quarter. On the second spot was Miller Value Partners which amassed $60.6 million worth of shares. Altimeter Capital Management, Scopus Asset Management, and Chilton Investment Company 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 Foxhaven Asset Management allocated the biggest weight to Vroom, Inc. (NASDAQ:VRM), around 3.74% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, designating 2.59 percent of its 13F equity portfolio to VRM.
As aggregate interest increased, specific money managers were breaking ground themselves. Six Columns Capital, managed by Brad Stephens, initiated the biggest position in Vroom, Inc. (NASDAQ:VRM). Six Columns Capital had $8.5 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $8.4 million position during the quarter. The following funds were also among the new VRM investors: Dmitry Balyasny’s Balyasny Asset Management, Andrew Byington’s Appian Way Asset Management, and Steve Cohen’s Point72 Asset Management.
Let’s now review hedge fund activity in other stocks similar to Vroom, Inc. (NASDAQ:VRM). We will take a look at Deckers Outdoor Corp (NASDAQ:DECK), BanColombia S.A. (NYSE:CIB), Toll Brothers Inc (NYSE:TOL), WEX Inc (NYSE:WEX), Ciena Corporation (NASDAQ:CIEN), Arrow Electronics, Inc. (NYSE:ARW), and Bruker Corporation (NASDAQ:BRKR). This group of stocks’ market valuations are similar to VRM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DECK | 54 | 1096897 | 7 |
| CIB | 3 | 60943 | -6 |
| TOL | 39 | 707443 | 0 |
| WEX | 26 | 288327 | 2 |
| CIEN | 29 | 157976 | -3 |
| ARW | 28 | 651619 | -1 |
| BRKR | 31 | 154882 | 3 |
| Average | 30 | 445441 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $399 million in VRM’s case. Deckers Outdoor Corp (NASDAQ:DECK) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 3 bullish hedge fund positions. Vroom, Inc. (NASDAQ:VRM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRM is 70.4. 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 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 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately VRM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VRM were disappointed as the stock returned -20.7% since the end of September (through 12/18) 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 so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
