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Do Hedge Funds Love Yelp Inc (YELP)?

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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Yelp Inc (NYSE:YELP) to find out whether there were any major changes in hedge funds' views.

Is Yelp Inc (NYSE:YELP) a bargain? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets improved by 7 lately. Yelp Inc (NYSE:YELP) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistic is 45. Our calculations also showed that YELP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind let's take a look at the fresh hedge fund action surrounding Yelp Inc (NYSE:YELP).

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

At second quarter's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in YELP a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is YELP A Good Stock To Buy?
Is YELP A Good Stock To Buy?

More specifically, 0 was the largest shareholder of Yelp Inc (NYSE:YELP), with a stake worth $143.8 million reported as of the end of June. Trailing Fisher Asset Management was D E Shaw, which amassed a stake valued at $108.2 million. AQR Capital Management, Tenzing Global Investors, and Arrowstreet 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 12.67% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, dishing out 2.04 percent of its 13F equity portfolio to YELP.

Now, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most valuable position in Yelp Inc (NYSE:YELP). Millennium Management had $20.9 million invested in the company at the end of the quarter. Gilchrist Berg's Water Street Capital also initiated a $12 million position during the quarter. The other funds with brand new YELP positions are Josh Resnick's Jericho Capital Asset Management, Paul Tudor Jones's Tudor Investment Corp, and Joel Greenblatt's Gotham Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Yelp Inc (NYSE:YELP) but similarly valued. These stocks are Renewable Energy Group Inc (NASDAQ:REGI), Avista Corp (NYSE:AVA), Greif, Inc. (NYSE:GEF), Patterson Companies, Inc. (NASDAQ:PDCO), PJT Partners Inc (NYSE:PJT), Desktop Metal, Inc. (NYSE:DM), and Trinity Industries, Inc. (NYSE:TRN). All of these stocks' market caps match YELP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REGI,17,73707,-4 AVA,17,44746,2 GEF,13,139667,0 PDCO,23,159010,3 PJT,19,79293,-3 DM,27,177707,7 TRN,20,636585,-8 Average,19.4,187245,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $545 million in YELP's case. Desktop Metal, Inc. (NYSE:DM) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 13 bullish hedge fund positions. Yelp Inc (NYSE:YELP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YELP is 78. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately YELP wasn't nearly as popular as these 5 stocks and hedge funds that were betting on YELP were disappointed as the stock returned -0.6% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.