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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding LendingTree, Inc (NASDAQ:TREE).
Is LendingTree, Inc (NASDAQ:TREE) a buy here? Money managers were in a bullish mood. The number of long hedge fund positions increased by 5 lately. LendingTree, Inc (NASDAQ:TREE) was in 30 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TREE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Ken Griffin of Citadel Investment Group
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. Now let's review the fresh hedge fund action surrounding LendingTree, Inc (NASDAQ:TREE).
Do Hedge Funds Think TREE Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2020. On the other hand, there were a total of 15 hedge funds with a bullish position in TREE a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Scopus Asset Management was the largest shareholder of LendingTree, Inc (NASDAQ:TREE), with a stake worth $84.8 million reported as of the end of June. Trailing Scopus Asset Management was Citadel Investment Group, which amassed a stake valued at $73.3 million. Two Sigma Advisors, Toronado Partners, and Citadel Investment Group 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 Toronado Partners allocated the biggest weight to LendingTree, Inc (NASDAQ:TREE), around 7.43% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, earmarking 1.17 percent of its 13F equity portfolio to TREE.
Consequently, specific money managers were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, established the largest position in LendingTree, Inc (NASDAQ:TREE). Scopus Asset Management had $84.8 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $13.6 million position during the quarter. The following funds were also among the new TREE investors: Matthew Lindenbaum's Basswood Capital, Dmitry Balyasny's Balyasny Asset Management, and Alexander Mitchell's Scopus Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as LendingTree, Inc (NASDAQ:TREE) but similarly valued. We will take a look at AMC Networks Inc (NASDAQ:AMCX), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), Group 1 Automotive, Inc. (NYSE:GPI), Main Street Capital Corporation (NYSE:MAIN), Embraer SA (NYSE:ERJ), and CVB Financial Corp. (NASDAQ:CVBF). This group of stocks' market valuations resemble TREE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMCX,19,252112,-3 BCRX,25,510918,3 RCKT,19,539196,-3 GPI,21,303598,-5 MAIN,8,18777,-2 ERJ,11,114145,-3 CVBF,13,32232,0 Average,16.6,252997,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $347 million in TREE's case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks LendingTree, Inc (NASDAQ:TREE) is more popular among hedge funds. Our overall hedge fund sentiment score for TREE is 90. 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. 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 still beat the market by 4.5 percentage points. Unfortunately TREE wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TREE were disappointed as the stock returned -27.3% since the end of the second quarter (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 most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.