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Should I Buy Chegg Inc (CHGG)?

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·6 min read
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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Chegg Inc (NYSE:CHGG).

Chegg Inc (NYSE:CHGG) was in 38 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. CHGG shareholders have witnessed an increase in support from the world's most elite money managers recently. There were 33 hedge funds in our database with CHGG holdings at the end of March. Our calculations also showed that CHGG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a peek at the new hedge fund action regarding Chegg Inc (NYSE:CHGG).

Do Hedge Funds Think CHGG Is A Good Stock To Buy Now?

At Q2's end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CHGG over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Brian Ashford-Russell and Tim Woolley's Polar Capital has the number one position in Chegg Inc (NYSE:CHGG), worth close to $118 million, accounting for 0.5% of its total 13F portfolio. The second largest stake is held by Zevenbergen Capital Investments, managed by Nancy Zevenbergen, which holds a $100 million position; 1.8% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions encompass Daniel Patrick Gibson's Sylebra Capital Management, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Selkirk Management allocated the biggest weight to Chegg Inc (NYSE:CHGG), around 9.06% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, earmarking 6.38 percent of its 13F equity portfolio to CHGG.

As one would reasonably expect, key money managers have been driving this bullishness. Hitchwood Capital Management, managed by James Crichton, initiated the most valuable position in Chegg Inc (NYSE:CHGG). Hitchwood Capital Management had $24.9 million invested in the company at the end of the quarter. Adam Parker's Center Lake Capital also made a $22.9 million investment in the stock during the quarter. The other funds with brand new CHGG positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Kevin Cottrell and Chris LaSusa's KCL Capital, and Dmitry Balyasny's Balyasny Asset Management.

Let's go over hedge fund activity in other stocks similar to Chegg Inc (NYSE:CHGG). We will take a look at Trex Company, Inc. (NYSE:TREX), Grifols SA (NASDAQ:GRFS), The Toro Company (NYSE:TTC), Newell Brands Inc. (NASDAQ:NWL), Molson Coors Beverage Company (NYSE:TAP), BorgWarner Inc. (NYSE:BWA), and Zynga Inc (NASDAQ:ZNGA). All of these stocks' market caps match CHGG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREX,25,206431,2 GRFS,14,283634,2 TTC,32,976252,0 NWL,25,2028252,1 TAP,39,519321,5 BWA,27,567604,0 ZNGA,49,1270452,2 Average,30.1,835992,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $836 million. That figure was $667 million in CHGG's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. Chegg Inc (NYSE:CHGG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHGG is 69.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately CHGG wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CHGG were disappointed as the stock returned -25.1% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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