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Hedge Funds Have Never Been This Bullish On Carvana Co. (CVNA)

Nina Todic

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Carvana Co. (NYSE:CVNA).

Is Carvana Co. (NYSE:CVNA) a good investment now? Prominent investors are getting more bullish. The number of long hedge fund positions went up by 7 lately. Our calculations also showed that cvna isn't among the 30 most popular stocks among hedge funds. CVNA was in 41 hedge funds' portfolios at the end of the first quarter of 2019. There were 34 hedge funds in our database with CVNA positions at the end of the previous quarter.

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 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 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.

Chase Coleman Tiger Global Management

Let's take a gander at the new hedge fund action encompassing Carvana Co. (NYSE:CVNA).

How have hedgies been trading Carvana Co. (NYSE:CVNA)?

At Q1's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the fourth quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in CVNA a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CVNA Positions

The largest stake in Carvana Co. (NYSE:CVNA) was held by Spruce House Investment Management, which reported holding $325.1 million worth of stock at the end of March. It was followed by CAS Investment Partners with a $146.6 million position. Other investors bullish on the company included Tiger Global Management, Whale Rock Capital Management, and Goodnow Investment Group.

As industrywide interest jumped, some big names have jumped into Carvana Co. (NYSE:CVNA) headfirst. Tiger Global Management, managed by Chase Coleman, established the largest position in Carvana Co. (NYSE:CVNA). Tiger Global Management had $119 million invested in the company at the end of the quarter. James Crichton's Hitchwood Capital Management also made a $40.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Seymour Sy Kaufman and Michael Stark's Crosslink Capital, Mike Ogborne's Ogborne Capital, and Leon Shaulov's Maplelane Capital.

Let's now take a look at hedge fund activity in other stocks similar to Carvana Co. (NYSE:CVNA). We will take a look at DocuSign, Inc. (NASDAQ:DOCU), Qorvo Inc (NASDAQ:QRVO), Zscaler, Inc. (NASDAQ:ZS), and Brookfield Property Partners LP (NASDAQ:BPY). This group of stocks' market valuations are similar to CVNA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DOCU,34,538816,11 QRVO,34,1200686,6 ZS,19,301088,2 BPY,8,76215,0 Average,23.75,529201,4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $529 million. That figure was $1613 million in CVNA's case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Carvana Co. (NYSE:CVNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CVNA, though not to the same extent, as the stock returned 1.2% during the same period and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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