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Godaddy Inc (GDDY): Were Hedge Funds Right?

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·7 min read
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In this article we will analyze whether Godaddy Inc (NYSE:GDDY) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Hedge fund interest in Godaddy Inc (NYSE:GDDY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GDDY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare GDDY to other stocks including Imperial Oil Limited (NYSE:IMO), PTC Inc (NASDAQ:PTC), and Avalara, Inc. (NYSE:AVLR) to get a better sense of its popularity.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Ricky Sandler's tsop 10 stock picks
Ricky Sandler's tsop 10 stock picks

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 review the key hedge fund action surrounding Godaddy Inc (NYSE:GDDY).

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

At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in GDDY over the last 22 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is GDDY A Good Stock To Buy?
Is GDDY A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the most valuable position in Godaddy Inc (NYSE:GDDY). Select Equity Group has a $878.7 million position in the stock, comprising 3.6% of its 13F portfolio. The second most bullish fund manager is BlueSpruce Investments, led by Tim Hurd and Ed Magnus, holding a $540.8 million position; the fund has 10.7% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions include Mitch Kuflik and Rob Sobel's Brahman Capital, D. E. Shaw's D E Shaw and Alexis Fortune's Blacksheep Fund Management. In terms of the portfolio weights assigned to each position Blacksheep Fund Management allocated the biggest weight to Godaddy Inc (NYSE:GDDY), around 28.24% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, designating 14.58 percent of its 13F equity portfolio to GDDY.

Due to the fact that Godaddy Inc (NYSE:GDDY) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedge funds who sold off their positions entirely in the fourth quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $26.3 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $23.5 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Godaddy Inc (NYSE:GDDY). We will take a look at Imperial Oil Limited (NYSE:IMO), PTC Inc (NASDAQ:PTC), Avalara, Inc. (NYSE:AVLR), Westinghouse Air Brake Technologies Corporation (NYSE:WAB), Wix.Com Ltd (NASDAQ:WIX), Liberty Global plc (NASDAQ:LBTYA), and Black Knight, Inc. (NYSE:BKI). All of these stocks' market caps resemble GDDY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMO,8,20725,-3 PTC,38,1802897,-1 AVLR,56,1313766,10 WAB,45,2348711,7 WIX,37,999707,1 LBTYA,36,1123404,1 BKI,44,994940,3 Average,37.7,1229164,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1229 million. That figure was $2610 million in GDDY's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 8 bullish hedge fund positions. Godaddy Inc (NYSE:GDDY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GDDY is 66.5. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately GDDY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GDDY were disappointed as the stock returned 4.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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