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Is CHGG A Good Stock To Buy Now?

Reymerlyn Martin
·6 min read

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Chegg Inc (NYSE:CHGG) changed recently.

Is CHGG a good stock to buy now? Chegg Inc (NYSE:CHGG) has experienced a decrease in activity from the world's largest hedge funds recently. Chegg Inc (NYSE:CHGG) was in 42 hedge funds' portfolios at the end of September. The all time high for this statistic is 45. Our calculations also showed that CHGG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

If you'd ask most shareholders, hedge funds are seen as slow, outdated financial vehicles of the past. While there are more than 8000 funds with their doors open at present, Our experts look at the elite of this club, around 850 funds. It is estimated that this group of investors direct most of the hedge fund industry's total asset base, and by paying attention to their finest stock picks, Insider Monkey has unearthed a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

BRIDGEWATER ASSOCIATES
BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to take a gander at the new hedge fund action regarding Chegg Inc (NYSE:CHGG).

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

At the end of September, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHGG over the last 21 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Sylebra Capital Management held the most valuable stake in Chegg Inc (NYSE:CHGG), which was worth $236.5 million at the end of the third quarter. On the second spot was Zevenbergen Capital Investments which amassed $96.1 million worth of shares. SCGE Management, Polar Capital, and Arrowstreet Capital 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 Selkirk Management allocated the biggest weight to Chegg Inc (NYSE:CHGG), around 7.33% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, earmarking 7.27 percent of its 13F equity portfolio to CHGG.

Judging by the fact that Chegg Inc (NYSE:CHGG) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few funds that elected to cut their entire stakes heading into Q4. At the top of the heap, D. E. Shaw's D E Shaw dropped the largest position of the 750 funds tracked by Insider Monkey, totaling about $103 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $75.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Chegg Inc (NYSE:CHGG) but similarly valued. We will take a look at Fidelity National Financial Inc (NYSE:FNF), Allegion plc (NYSE:ALLE), Universal Health Services, Inc. (NYSE:UHS), IPG Photonics Corporation (NASDAQ:IPGP), WestRock Company (NYSE:WRK), Caesars Entertainment Inc. (NASDAQ:CZR), and The Toro Company (NYSE:TTC). All of these stocks' market caps are similar to CHGG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNF,44,1065923,-3 ALLE,32,540945,3 UHS,34,380704,-4 IPGP,24,291440,-6 WRK,32,502482,0 CZR,74,1856850,24 TTC,32,959661,1 Average,38.9,799715,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $800 million. That figure was $839 million in CHGG's case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 24 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 48. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on CHGG, though not to the same extent, as the stock returned 11% since Q3 (through December 8th) and outperformed the market as well.

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

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