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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Youdao, Inc. (NYSE:DAO) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Youdao, Inc. (NYSE:DAO) was in 3 hedge funds’ portfolios at the end of December. DAO investors should be aware of an increase in hedge fund interest recently. There were 0 hedge funds in our database with DAO positions at the end of the previous quarter. Our calculations also showed that DAO 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).
At the moment there are numerous tools stock market investors employ to assess publicly traded companies. A couple of the most under-the-radar tools are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can trounce their index-focused peers by a solid margin (see the details here).
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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 let’s view the latest hedge fund action surrounding Youdao, Inc. (NYSE:DAO).
How have hedgies been trading Youdao, Inc. (NYSE:DAO)?
At Q4’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DAO 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, Orbis Investment Management held the most valuable stake in Youdao, Inc. (NYSE:DAO), which was worth $2.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1 million worth of shares. Symmetry Peak Management was 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 Symmetry Peak Management allocated the biggest weight to Youdao, Inc. (NYSE:DAO), around 0.11% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to DAO.
As aggregate interest increased, specific money managers have been driving this bullishness. Orbis Investment Management, managed by William B. Gray, created the largest position in Youdao, Inc. (NYSE:DAO). Orbis Investment Management had $2.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1 million position during the quarter. The only other fund with a new position in the stock is Frank Slattery’s Symmetry Peak Management.
Let’s now take a look at hedge fund activity in other stocks similar to Youdao, Inc. (NYSE:DAO). These stocks are Chesapeake Utilities Corporation (NYSE:CPK), KEMET Corporation (NYSE:KEM), Brinker International, Inc. (NYSE:EAT), and Huron Consulting Group (NASDAQ:HURN). This group of stocks’ market valuations are similar to DAO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPK | 8 | 35601 | -1 |
| KEM | 21 | 191537 | 1 |
| EAT | 21 | 181122 | -8 |
| HURN | 14 | 48321 | 3 |
| Average | 16 | 114145 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $4 million in DAO’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Youdao, Inc. (NYSE:DAO) is even less popular than CPK. Hedge funds clearly dropped the ball on DAO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on DAO as the stock returned 45.9% during the same time period and outperformed the market by an even larger margin.
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.