Is Despegar.com, Corp. (NYSE:DESP) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Despegar.com, Corp. (NYSE:DESP) investors should be aware of a decrease in enthusiasm from smart money lately. DESP was in 12 hedge funds' portfolios at the end of June. There were 15 hedge funds in our database with DESP holdings at the end of the previous quarter. Our calculations also showed that DESP isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the fresh hedge fund action regarding Despegar.com, Corp. (NYSE:DESP).
What does smart money think about Despegar.com, Corp. (NYSE:DESP)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in DESP a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Tiger Global Management LLC was the largest shareholder of Despegar.com, Corp. (NYSE:DESP), with a stake worth $128.6 million reported as of the end of March. Trailing Tiger Global Management LLC was Bares Capital Management, which amassed a stake valued at $42.2 million. Two Creeks Capital Management, Kerrisdale Capital, and PAR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Despegar.com, Corp. (NYSE:DESP) has experienced a decline in interest from the smart money, it's easy to see that there was a specific group of hedgies that elected to cut their full holdings in the second quarter. At the top of the heap, Israel Englander's Millennium Management sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $2.9 million in stock, and Christopher Lyle's SCGE Management was right behind this move, as the fund dumped about $2.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Despegar.com, Corp. (NYSE:DESP). These stocks are Bain Capital Specialty Finance, Inc. (NYSE:BCSF), Twist Bioscience Corporation (NASDAQ:TWST), Mesa Laboratories, Inc. (NASDAQ:MLAB), and Ballard Power Systems Inc. (NASDAQ:BLDP). This group of stocks' market valuations are closest to DESP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCSF,5,32152,3 TWST,9,70227,6 MLAB,8,54809,-2 BLDP,4,784,1 Average,6.5,39493,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $193 million in DESP's case. Twist Bioscience Corporation (NASDAQ:TWST) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Despegar.com, Corp. (NYSE:DESP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DESP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DESP were disappointed as the stock returned -18.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.