Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Yelp Inc (NYSE:YELP) makes for a good investment right now.
Is Yelp Inc (NYSE:YELP) a good stock to buy now? The smart money is selling. The number of long hedge fund bets fell by 2 in recent months. Our calculations also showed that YELP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most investors, hedge funds are viewed as unimportant, outdated financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, We look at the aristocrats of this club, approximately 850 funds. These hedge fund managers preside over the lion’s share of the smart money’s total capital, and by observing their best investments, Insider Monkey has determined several investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the key hedge fund action encompassing Yelp Inc (NYSE:YELP).
What have hedge funds been doing with Yelp Inc (NYSE:YELP)?
Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in YELP over the last 18 quarters. 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, D E Shaw held the most valuable stake in Yelp Inc (NYSE:YELP), which was worth $105.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $98.7 million worth of shares. Goodnow Investment Group, Tenzing Global Investors, and Millennium 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 12.26% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, dishing out 3.67 percent of its 13F equity portfolio to YELP.
Due to the fact that Yelp Inc (NYSE:YELP) has witnessed a decline in interest from the smart money, it’s easy to see that there is a sect of hedgies who were dropping their entire stakes in the third quarter. Interestingly, Gil Simon’s SoMa Equity Partners sold off the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $17.4 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund sold off about $5.3 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Yelp Inc (NYSE:YELP). These stocks are Columbia Property Trust Inc (NYSE:CXP), Acushnet Holdings Corp. (NYSE:GOLF), United Community Banks Inc (NASDAQ:UCBI), and LexinFintech Holdings Ltd. (NASDAQ:LX). This group of stocks’ market caps are closest to YELP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CXP | 22 | 123416 | 7 |
| GOLF | 16 | 22328 | 3 |
| UCBI | 16 | 56723 | 3 |
| LX | 13 | 117071 | -2 |
| Average | 16.75 | 79885 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $361 million in YELP’s case. Columbia Property Trust Inc (NYSE:CXP) is the most popular stock in this table. On the other hand LexinFintech Holdings Ltd. (NASDAQ:LX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Yelp Inc (NYSE:YELP) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately YELP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on YELP were disappointed as the stock returned -39.5% during the first two and a half months of 2020 (through March 25th) 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 Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
