Was The Smart Money Right About Yelp Inc (YELP)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Yelp Inc (NYSE:YELP) based on that data.

Yelp Inc (NYSE:YELP) has experienced an increase in activity from the world’s largest hedge funds lately. Yelp Inc (NYSE:YELP) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistic is 45. There were 20 hedge funds in our database with YELP holdings at the end of March. Our calculations also showed that YELP isn’t among the 30 most popular stocks among hedge funds (click 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Joel Greenblatt of Gotham Asset Management

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. Keeping this in mind we’re going to view the recent hedge fund action surrounding Yelp Inc (NYSE:YELP).

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

At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards YELP over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, 0 held the most valuable stake in Yelp Inc (NYSE:YELP), which was worth $143.8 million at the end of the second quarter. On the second spot was D E Shaw which amassed $108.2 million worth of shares. AQR Capital Management, Tenzing Global Investors, 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 12.67% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, setting aside 2.04 percent of its 13F equity portfolio to YELP.

As one would reasonably expect, key hedge funds have jumped into Yelp Inc (NYSE:YELP) headfirst. Millennium Management, managed by Israel Englander, initiated the largest position in Yelp Inc (NYSE:YELP). Millennium Management had $20.9 million invested in the company at the end of the quarter. Gilchrist Berg’s Water Street Capital also initiated a $12 million position during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and Joel Greenblatt’s Gotham Asset Management.

Let’s go over hedge fund activity in other stocks similar to Yelp Inc (NYSE:YELP). We will take a look at Renewable Energy Group Inc (NASDAQ:REGI), Avista Corp (NYSE:AVA), Greif, Inc. (NYSE:GEF), Patterson Companies, Inc. (NASDAQ:PDCO), PJT Partners Inc (NYSE:PJT), Desktop Metal, Inc. (NYSE:DM), and Trinity Industries, Inc. (NYSE:TRN). All of these stocks’ market caps are similar to YELP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $545 million in YELP’s case. Desktop Metal, Inc. (NYSE:DM) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 13 bullish hedge fund positions. Yelp Inc (NYSE:YELP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YELP is 78. 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 YELP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on YELP were disappointed as the stock returned -4.4% 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.

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