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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter 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 Despegar.com, Corp. (NYSE:DESP).
Is Despegar.com, Corp. (NYSE:DESP) a great investment now? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 1 recently. Our calculations also showed that DESP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the fresh hedge fund action regarding Despegar.com, Corp. (NYSE:DESP).
Hedge fund activity in Despegar.com, Corp. (NYSE:DESP)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in DESP a year ago. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Tiger Global Management, managed by Chase Coleman, holds the largest position in Despegar.com, Corp. (NYSE:DESP). Tiger Global Management has a $104.8 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Brian Bares of Bares Capital Management, with a $26.4 million position; 0.8% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Ryan Pedlow's Two Creeks Capital Management, David E. Shaw's D E Shaw and Sahm Adrangi's Kerrisdale Capital. In terms of the portfolio weights assigned to each position Kerrisdale Capital allocated the biggest weight to Despegar.com, Corp. (NYSE:DESP), around 1.45% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, designating 0.79 percent of its 13F equity portfolio to DESP.
Seeing as Despegar.com, Corp. (NYSE:DESP) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of funds that decided to sell off their full holdings in the third quarter. At the top of the heap, Ken Griffin's Citadel Investment Group dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, totaling close to $1.6 million in stock, and Dennis Leibowitz's Act II Capital was right behind this move, as the fund sold off about $1.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Despegar.com, Corp. (NYSE:DESP) but similarly valued. We will take a look at Camping World Holdings, Inc. (NYSE:CWH), Comtech Telecommunications Corp. (NASDAQ:CMTL), Cass Information Systems (NASDAQ:CASS), and Horizon Bancorp (NASDAQ:HBNC). All of these stocks' market caps are closest to DESP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWH,12,95452,3 CMTL,19,99512,2 CASS,9,17888,-2 HBNC,10,27758,-1 Average,12.5,60153,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $151 million in DESP's case. Comtech Telecommunications Corp. (NASDAQ:CMTL) is the most popular stock in this table. On the other hand Cass Information Systems (NASDAQ:CASS) is the least popular one with only 9 bullish hedge fund positions. Despegar.com, Corp. (NYSE:DESP) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on DESP, though not to the same extent, as the stock returned 9.7% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.