Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of CDK Global Inc (NASDAQ:CDK) based on that data and determine whether they were really smart about the stock.
Is CDK Global Inc (NASDAQ:CDK) a buy, sell, or hold? The smart money was becoming more confident. The number of bullish hedge fund positions rose by 8 recently. CDK Global Inc (NASDAQ:CDK) was in 32 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 45. Our calculations also showed that CDK isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Thomas Bancroft of Makaira Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let's analyze the key hedge fund action encompassing CDK Global Inc (NASDAQ:CDK).
How have hedgies been trading CDK Global Inc (NASDAQ:CDK)?
Heading into the third quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in CDK a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, P2 Capital Partners was the largest shareholder of CDK Global Inc (NASDAQ:CDK), with a stake worth $62.1 million reported as of the end of September. Trailing P2 Capital Partners was AQR Capital Management, which amassed a stake valued at $51.6 million. International Value Advisers, Makaira Partners, and Harbor Spring 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 RIT Capital Partners allocated the biggest weight to CDK Global Inc (NASDAQ:CDK), around 10.84% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, designating 8.42 percent of its 13F equity portfolio to CDK.
With a general bullishness amongst the heavyweights, key money managers have jumped into CDK Global Inc (NASDAQ:CDK) headfirst. P2 Capital Partners, managed by Claus Moller, initiated the largest position in CDK Global Inc (NASDAQ:CDK). P2 Capital Partners had $62.1 million invested in the company at the end of the quarter. Jacob Rothschild's RIT Capital Partners also initiated a $18.3 million position during the quarter. The following funds were also among the new CDK investors: Anthony Bozza's Lakewood Capital Management, Steve Cohen's Point72 Asset Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CDK Global Inc (NASDAQ:CDK) but similarly valued. These stocks are Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), Euronet Worldwide, Inc. (NASDAQ:EEFT), Mirati Therapeutics, Inc. (NASDAQ:MRTX), Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), and Skechers USA Inc (NYSE:SKX). All of these stocks' market caps are similar to CDK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TKC,5,48945,2 LECO,22,204039,3 EEFT,37,311496,7 MRTX,36,1586629,3 ORI,26,232497,-1 DADA,17,64230,17 SKX,33,624872,7 Average,25.1,438958,5.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $324 million in CDK's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. CDK Global Inc (NASDAQ:CDK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDK is 73.5. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately CDK wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CDK were disappointed as the stock returned 7.6% during the same time period 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 so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.