We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like GrubHub Inc (NYSE:GRUB).
Is GrubHub Inc (NYSE:GRUB) a first-rate investment today? Prominent investors are taking a pessimistic view. The number of long hedge fund bets fell by 9 in recent months. Our calculations also showed that GRUB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GRUB was in 23 hedge funds' portfolios at the end of September. There were 32 hedge funds in our database with GRUB holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_735677" align="aligncenter" width="1680"] Sander Gerber of Hudson Bay Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to review the key hedge fund action regarding GrubHub Inc (NYSE:GRUB).
What does smart money think about GrubHub Inc (NYSE:GRUB)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GRUB over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pelham Capital, managed by Ross Turner, holds the most valuable position in GrubHub Inc (NYSE:GRUB). Pelham Capital has a $158.3 million position in the stock, comprising 17.8% of its 13F portfolio. The second largest stake is held by Lansdowne Partners, managed by Alex Snow, which holds a $121.8 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Other peers with similar optimism include Andreas Halvorsen's Viking Global, Brett Barakett's Tremblant Capital and Robert M. P. Luciano's VGI Partners. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to GrubHub Inc (NYSE:GRUB), around 17.76% of its 13F portfolio. Marathon Partners is also relatively very bullish on the stock, earmarking 8.41 percent of its 13F equity portfolio to GRUB.
Because GrubHub Inc (NYSE:GRUB) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers who were dropping their entire stakes last quarter. Intriguingly, Marcelo Desio's Lucha Capital Management said goodbye to the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising about $14.1 million in stock, and Brad Gerstner's Altimeter Capital Management was right behind this move, as the fund said goodbye to about $13 million worth. These moves are important to note, as total hedge fund interest was cut by 9 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as GrubHub Inc (NYSE:GRUB) but similarly valued. These stocks are Eaton Vance Corp (NYSE:EV), Seaboard Corporation (NYSEAMEX:SEB), Floor & Decor Holdings, Inc. (NYSE:FND), and Empire State Realty Trust Inc (NYSE:ESRT). All of these stocks' market caps are similar to GRUB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EV,15,101488,0 SEB,16,147649,0 FND,23,471890,2 ESRT,9,102681,-3 Average,15.75,205927,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $595 million in GRUB's case. Floor & Decor Holdings, Inc. (NYSE:FND) is the most popular stock in this table. On the other hand Empire State Realty Trust Inc (NYSE:ESRT) is the least popular one with only 9 bullish hedge fund positions. GrubHub Inc (NYSE:GRUB) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GRUB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GRUB were disappointed as the stock returned -23.3% during the fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.