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Hedge Funds Are Souring On CDK Global Inc (CDK)

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of CDK Global Inc (NASDAQ:CDK) based on that data.

Is CDK Global Inc (NASDAQ:CDK) a buy right now? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund bets retreated by 1 in recent months. Our calculations also showed that CDK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CDK was in 24 hedge funds' portfolios at the end of the first quarter of 2020. There were 25 hedge funds in our database with CDK positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_364869" align="aligncenter" width="400"] Thomas Bancroft of Makaira Partners[/caption]

Thomas Bancroft - Makaira Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to go over the new hedge fund action encompassing CDK Global Inc (NASDAQ:CDK).

How are hedge funds trading CDK Global Inc (NASDAQ:CDK)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in CDK a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is CDK A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Charles de Vaulx's International Value Advisers has the largest position in CDK Global Inc (NASDAQ:CDK), worth close to $58.2 million, amounting to 3.7% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $24.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Amit Nitin Doshi's Harbor Spring Capital, Thomas Bancroft's Makaira Partners and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to CDK Global Inc (NASDAQ:CDK), around 5.11% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, designating 3.68 percent of its 13F equity portfolio to CDK.

Since CDK Global Inc (NASDAQ:CDK) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedgies that slashed their positions entirely in the first quarter. It's worth mentioning that Jeffrey Gates's Gates Capital Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, comprising about $57.3 million in stock, and Anthony Bozza's Lakewood Capital Management was right behind this move, as the fund dumped about $42.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the first quarter.

Let's go over hedge fund activity in other stocks similar to CDK Global Inc (NASDAQ:CDK). We will take a look at ITT Inc. (NYSE:ITT), Lancaster Colony Corporation (NASDAQ:LANC), HollyFrontier Corporation (NYSE:HFC), and Telecom Argentina S.A. (NYSE:TEO). This group of stocks' market valuations match CDK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITT,28,373059,0 LANC,23,180392,7 HFC,24,203908,-6 TEO,4,32332,-1 Average,19.75,197423,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $181 million in CDK's case. ITT Inc. (NYSE:ITT) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 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 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on CDK as the stock returned 35.7% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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