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Hedge Funds Never Been Less Bullish On Yelp Inc (YELP)

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Yelp Inc (NYSE:YELP) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Yelp Inc (NYSE:YELP) has seen a decrease in hedge fund interest in recent months. Yelp Inc (NYSE:YELP) was in 20 hedge funds' portfolios at the end of the first quarter of 2021. 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 Q1 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. 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 115 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.

Philip Hempleman Ardsley Partners
Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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 we're going to analyze the recent hedge fund action regarding Yelp Inc (NYSE:YELP).

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

Heading into the second quarter of 2021, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards YELP over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Yelp Inc (NYSE:YELP), which was worth $146.5 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $107.1 million worth of shares. Tenzing Global Investors, AQR Capital Management, 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 0 allocated the biggest weight to Yelp Inc (NYSE:YELP), around 16.41% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 2.13 percent of its 13F equity portfolio to YELP.

Seeing as Yelp Inc (NYSE:YELP) has witnessed declining sentiment from the smart money, we can see that there were a few hedgies that elected to cut their full holdings in the first quarter. Interestingly, Israel Englander's Millennium Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $19.1 million in stock, and Leonard Green's Leonard Green & Partners was right behind this move, as the fund sold off about $4.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 11 funds in the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Yelp Inc (NYSE:YELP) but similarly valued. These stocks are TreeHouse Foods Inc. (NYSE:THS), Papa John's International, Inc. (NASDAQ:PZZA), Microvision, Inc. (NASDAQ:MVIS), The Simply Good Foods Company (NASDAQ:SMPL), Helmerich & Payne, Inc. (NYSE:HP), Vivint Smart Home, Inc. (NYSE:VVNT), and GrowGeneration Corp. (NASDAQ:GRWG). This group of stocks' market valuations are closest to YELP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THS,27,368885,3 PZZA,32,355821,0 MVIS,12,21630,6 SMPL,22,177708,6 HP,21,152124,2 VVNT,7,10266,-2 GRWG,18,127433,0 Average,19.9,173410,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $513 million in YELP's case. Papa John's International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Vivint Smart Home, Inc. (NYSE:VVNT) is the least popular one with only 7 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 33.3. 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 23.8% in 2021 through July 16th and beat the market again by 7.7 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 -5.5% since the end of March (through 7/16) 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.