Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Lyft, Inc. (NASDAQ:LYFT) and compare its performance to hedge funds’ consensus picks in 2019.
Lyft, Inc. (NASDAQ:LYFT) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that LYFT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Lyft, Inc. (NASDAQ:LYFT).
What have hedge funds been doing with Lyft, Inc. (NASDAQ:LYFT)?
Heading into the fourth quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LYFT over the last 17 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.
More specifically, Citadel Investment Group was the largest shareholder of Lyft, Inc. (NASDAQ:LYFT), with a stake worth $334 million reported as of the end of September. Trailing Citadel Investment Group was Glade Brook Capital Partners, which amassed a stake valued at $116.6 million. Light Street Capital, Senator Investment Group, and Alkeon Capital 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 Glade Brook Capital Partners allocated the biggest weight to Lyft, Inc. (NASDAQ:LYFT), around 32.92% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, setting aside 6.8 percent of its 13F equity portfolio to LYFT.
Due to the fact that Lyft, Inc. (NASDAQ:LYFT) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that elected to cut their positions entirely heading into Q4. Interestingly, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital said goodbye to the biggest position of the 750 funds watched by Insider Monkey, worth close to $508.6 million in stock. David E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $101.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Lyft, Inc. (NASDAQ:LYFT). These stocks are DENTSPLY SIRONA Inc. (NASDAQ:XRAY), BanColombia S.A. (NYSE:CIB), Roku, Inc. (NASDAQ:ROKU), and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT). All of these stocks’ market caps match LYFT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XRAY | 28 | 1628924 | -1 |
| CIB | 11 | 166123 | 1 |
| ROKU | 37 | 322495 | 4 |
| JBHT | 22 | 347136 | 2 |
| Average | 24.5 | 616170 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $616 million. That figure was $881 million in LYFT’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 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. 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately LYFT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LYFT were disappointed as the stock returned -41.8% in 2019 (through December 23rd) 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.
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.
