Was The Smart Money Right About Chegg Inc (CHGG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Chegg Inc (NYSE:CHGG).

Chegg Inc (NYSE:CHGG) was in 38 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. CHGG has seen an increase in hedge fund interest recently. There were 33 hedge funds in our database with CHGG holdings at the end of March. Our calculations also showed that CHGG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

If you’d ask most market participants, hedge funds are perceived as worthless, old investment vehicles of yesteryear. While there are more than 8000 funds in operation today, Our researchers hone in on the bigwigs of this club, about 850 funds. Most estimates calculate that this group of people command the majority of the hedge fund industry’s total asset base, and by paying attention to their highest performing investments, Insider Monkey has unsheathed a number of investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Tim Woolley of Polar Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. With all of this in mind let’s check out the recent hedge fund action encompassing Chegg Inc (NYSE:CHGG).

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

At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in CHGG 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.

More specifically, Polar Capital was the largest shareholder of Chegg Inc (NYSE:CHGG), with a stake worth $118 million reported as of the end of June. Trailing Polar Capital was Zevenbergen Capital Investments, which amassed a stake valued at $100 million. Sylebra Capital Management, Citadel Investment Group, and Two Sigma Advisors 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 Selkirk Management allocated the biggest weight to Chegg Inc (NYSE:CHGG), around 9.06% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, designating 6.38 percent of its 13F equity portfolio to CHGG.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Hitchwood Capital Management, managed by James Crichton, assembled the most valuable position in Chegg Inc (NYSE:CHGG). Hitchwood Capital Management had $24.9 million invested in the company at the end of the quarter. Adam Parker’s Center Lake Capital also made a $22.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Kevin Cottrell and Chris LaSusa’s KCL Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chegg Inc (NYSE:CHGG) but similarly valued. We will take a look at Trex Company, Inc. (NYSE:TREX), Grifols SA (NASDAQ:GRFS), The Toro Company (NYSE:TTC), Newell Brands Inc. (NASDAQ:NWL), Molson Coors Beverage Company (NYSE:TAP), BorgWarner Inc. (NYSE:BWA), and Zynga Inc (NASDAQ:ZNGA). This group of stocks’ market values resemble CHGG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $836 million. That figure was $667 million in CHGG’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. Chegg Inc (NYSE:CHGG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHGG is 69.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately CHGG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CHGG were disappointed as the stock returned -63.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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