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 Coupa Software Incorporated (NASDAQ:COUP) makes for a good investment right now.
Coupa Software Incorporated (NASDAQ:COUP) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that COUP 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Hintze of CQS Cayman LP
We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 let’s take a look at the recent hedge fund action regarding Coupa Software Incorporated (NASDAQ:COUP).
What does smart money think about Coupa Software Incorporated (NASDAQ:COUP)?
Heading into the first quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards COUP over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Coupa Software Incorporated (NASDAQ:COUP) was held by Whale Rock Capital Management, which reported holding $459.1 million worth of stock at the end of September. It was followed by Sylebra Capital Management with a $362 million position. Other investors bullish on the company included Lone Pine Capital, Viking Global, and Alkeon Capital Management. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 24.92% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, designating 16.53 percent of its 13F equity portfolio to COUP.
Judging by the fact that Coupa Software Incorporated (NASDAQ:COUP) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of funds who were dropping their positions entirely in the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the biggest stake of the 750 funds followed by Insider Monkey, comprising an estimated $106.6 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund sold off about $61.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). We will take a look at Whirlpool Corporation (NYSE:WHR), Tata Motors Limited (NYSE:TTM), Snap-on Incorporated (NYSE:SNA), and Kirkland Lake Gold Ltd. (NYSE:KL). All of these stocks’ market caps are similar to COUP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WHR | 28 | 1045246 | -3 |
| TTM | 11 | 148219 | 4 |
| SNA | 27 | 557734 | 0 |
| KL | 24 | 508654 | 8 |
| Average | 22.5 | 564963 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $565 million. That figure was $2625 million in COUP’s case. Whirlpool Corporation (NYSE:WHR) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on COUP as the stock returned 13.9% so far in 2020 (through April 20th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
