Is CHGG Stock A Buy or Sell?
At Insider Monkey, we pore over the filings of nearly 887 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 31st. In this article, we will use that wealth of knowledge to determine whether or not Chegg Inc (NYSE:CHGG) makes for a good investment right now.
Is CHGG stock a buy? Money managers were becoming less hopeful. The number of long hedge fund positions were cut by 9 recently. Chegg Inc (NYSE:CHGG) was in 33 hedge funds' portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings).
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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.
Matthew Hulsizer of PEAK6 Capital
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 under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Now let's take a look at the latest hedge fund action regarding Chegg Inc (NYSE:CHGG).
Do Hedge Funds Think CHGG Is A Good Stock To Buy Now?
At Q4's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CHGG over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sylebra Capital Management held the most valuable stake in Chegg Inc (NYSE:CHGG), which was worth $248.7 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $121.6 million worth of shares. Zevenbergen Capital Investments, Polar Capital, and Polar 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 9.45% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, dishing out 6.33 percent of its 13F equity portfolio to CHGG.
Seeing as Chegg Inc (NYSE:CHGG) has experienced bearish sentiment from hedge fund managers, we can see that there were a few hedgies who were dropping their positions entirely heading into Q1. Interestingly, Christopher Lyle's SCGE Management sold off the biggest stake of the 750 funds monitored by Insider Monkey, worth close to $87.5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $56.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds heading into Q1.
Let's go over hedge fund activity in other stocks similar to Chegg Inc (NYSE:CHGG). These stocks are Essential Utilities Inc (NYSE:WTRG), PulteGroup, Inc. (NYSE:PHM), Equity Lifestyle Properties, Inc. (NYSE:ELS), Lamb Weston Holdings, Inc. (NYSE:LW), Five9 Inc (NASDAQ:FIVN), Fidelity National Financial Inc (NYSE:FNF), and Concho Resources Inc. (NYSE:CXO). This group of stocks' market valuations match CHGG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTRG,13,227760,-8 PHM,40,1006027,-3 ELS,24,701738,-4 LW,29,335180,2 FIVN,47,1929875,0 FNF,40,1337274,-4 CXO,41,1045563,-6 Average,33.4,940488,-3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $940 million. That figure was $882 million in CHGG's case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 13 bullish hedge fund positions. Chegg Inc (NYSE:CHGG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CHGG is 47.4. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately CHGG wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); CHGG investors were disappointed as the stock returned -2.3% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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