How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Godaddy Inc (NYSE:GDDY) and determine whether hedge funds had an edge regarding this stock.
Is Godaddy Inc (NYSE:GDDY) the right pick for your portfolio? The smart money was becoming hopeful. The number of long hedge fund bets rose by 3 recently. Our calculations also showed that GDDY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). GDDY was in 54 hedge funds’ portfolios at the end of March. There were 51 hedge funds in our database with GDDY holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.
Glen Kacher of Light Street Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing Godaddy Inc (NYSE:GDDY).
What have hedge funds been doing with Godaddy Inc (NYSE:GDDY)?
Heading into the second quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GDDY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in Godaddy Inc (NYSE:GDDY), which was worth $451.5 million at the end of the third quarter. On the second spot was 12 West Capital Management which amassed $219.2 million worth of shares. BlueSpruce Investments, Renaissance Technologies, and D E Shaw 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 Brahman Capital allocated the biggest weight to Godaddy Inc (NYSE:GDDY), around 15.33% of its 13F portfolio. 12 West Capital Management is also relatively very bullish on the stock, setting aside 13.06 percent of its 13F equity portfolio to GDDY.
As one would reasonably expect, specific money managers have jumped into Godaddy Inc (NYSE:GDDY) headfirst. Newbrook Capital Advisors, managed by Robert Boucai, established the biggest position in Godaddy Inc (NYSE:GDDY). Newbrook Capital Advisors had $60 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $40.2 million position during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, James Woodson Davis’s Woodson Capital Management, and Clifton S. Robbins’s Blue Harbour Group.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Godaddy Inc (NYSE:GDDY) but similarly valued. We will take a look at CBOE Global Markets Inc (NASDAQ:CBOE), Essential Utilities Inc (NYSE:WTRG), Zebra Technologies Corporation (NASDAQ:ZBRA), and FactSet Research Systems Inc. (NYSE:FDS). This group of stocks’ market valuations match GDDY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBOE | 38 | 780569 | 11 |
| WTRG | 23 | 518741 | 2 |
| ZBRA | 28 | 576010 | -6 |
| FDS | 21 | 210129 | -3 |
| Average | 27.5 | 521362 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $521 million. That figure was $2248 million in GDDY’s case. CBOE Global Markets Inc (NASDAQ:CBOE) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Godaddy Inc (NYSE:GDDY) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on GDDY as the stock returned 28.4% in Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.
