Were Hedge Funds Right About Ditching Tripadvisor Inc (TRIP)?

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 Tripadvisor Inc (NASDAQ:TRIP).

Is Tripadvisor Inc (NASDAQ:TRIP) an exceptional investment today? Hedge funds are taking a bearish view. The number of long hedge fund positions shrunk by 1 recently. Our calculations also showed that TRIP isn’t among the 30 most popular stocks among hedge funds (see the video below).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Tripadvisor Inc (NASDAQ:TRIP).

What does smart money think about Tripadvisor Inc (NASDAQ:TRIP)?

Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the first quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in TRIP a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Eagle Capital Management was the largest shareholder of Tripadvisor Inc (NASDAQ:TRIP), with a stake worth $412.1 million reported as of the end of March. Trailing Eagle Capital Management was AQR Capital Management, which amassed a stake valued at $255.3 million. Bares Capital Management, D E Shaw, and PAR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Tripadvisor Inc (NASDAQ:TRIP) has experienced falling interest from the smart money, we can see that there was a specific group of funds that decided to sell off their full holdings by the end of the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $8.8 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund dumped about $4.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks similar to Tripadvisor Inc (NASDAQ:TRIP). These stocks are Cemex SAB de CV (NYSE:CX), Macy’s, Inc. (NYSE:M), Herbalife Nutrition Ltd. (NYSE:HLF), and American Campus Communities, Inc. (NYSE:ACC). This group of stocks’ market caps are closest to TRIP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $940 million. That figure was $1217 million in TRIP’s case. Macy’s, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 11 bullish hedge fund positions. Tripadvisor Inc (NASDAQ:TRIP) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TRIP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRIP were disappointed as the stock returned -16.4% during the third quarter 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.

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