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 eBay Inc (NASDAQ:EBAY) makes for a good investment right now.
Is eBay Inc (NASDAQ:EBAY) going to take off soon? The best stock pickers are in a pessimistic mood. The number of long hedge fund positions shrunk by 8 lately. Our calculations also showed that EBAY 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding eBay Inc (NASDAQ:EBAY).
How have hedgies been trading eBay Inc (NASDAQ:EBAY)?
At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in EBAY over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baupost Group, managed by Seth Klarman, holds the biggest position in eBay Inc (NASDAQ:EBAY). Baupost Group has a $722 million position in the stock, comprising 8% of its 13F portfolio. Coming in second of Renaissance Technologies, with a $546 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish include Paul Singer’s Elliott Management, Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Baupost Group allocated the biggest weight to eBay Inc (NASDAQ:EBAY), around 7.97% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, designating 7.87 percent of its 13F equity portfolio to EBAY.
Due to the fact that eBay Inc (NASDAQ:EBAY) has witnessed declining sentiment from the smart money, it’s safe to say that there is a sect of fund managers that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Michael Lowenstein’s Kensico Capital said goodbye to the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $257.7 million in stock. George Soros’s fund, Soros Fund Management, also dropped its stock, about $46.4 million worth. These moves are interesting, as total hedge fund interest dropped by 8 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as eBay Inc (NASDAQ:EBAY) but similarly valued. These stocks are Atlassian Corporation Plc (NASDAQ:TEAM), AvalonBay Communities Inc (NYSE:AVB), Canon Inc. (NYSE:CAJ), and WEC Energy Group, Inc. (NYSE:WEC). This group of stocks’ market values match EBAY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEAM | 62 | 2649059 | 9 |
| AVB | 23 | 442044 | 2 |
| CAJ | 8 | 69992 | 0 |
| WEC | 15 | 211776 | -7 |
| Average | 27 | 843218 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $843 million. That figure was $3621 million in EBAY’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. eBay Inc (NASDAQ:EBAY) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on EBAY as the stock returned 9.2% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
