Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Lyft, Inc. (NASDAQ:LYFT) a great stock to buy now? Hedge funds are taking a bullish view. The number of long hedge fund positions stood at 71 at the end of Q1. Though our calculations also showed that LYFT isn't among the 30 most popular stocks among hedge funds.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the key hedge fund action surrounding Lyft, Inc. (NASDAQ:LYFT).
Hedge fund activity in Lyft, Inc. (NASDAQ:LYFT)
Heading into the second quarter of 2019, a total of 71 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LYFT over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lyft, Inc. (NASDAQ:LYFT) was held by Falcon Edge Capital, which reported holding $605.9 million worth of stock at the end of March. It was followed by Glade Brook Capital Partners with a $324.7 million position. Other investors bullish on the company included Senator Investment Group, D E Shaw, and Citadel Investment Group.
Now, specific money managers were breaking ground themselves. Falcon Edge Capital, managed by Richard Gerson and Navroz D. Udwadia, established the largest position in Lyft, Inc. (NASDAQ:LYFT). Falcon Edge Capital had $605.9 million invested in the company at the end of the quarter. Paul Hudson's Glade Brook Capital Partners also made a $324.7 million investment in the stock during the quarter. The following funds were also among the new LYFT investors: Doug Silverman and Alexander Klabin's Senator Investment Group, D. E. Shaw's D E Shaw, and Ken Griffin's Citadel Investment Group.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Lyft, Inc. (NASDAQ:LYFT) but similarly valued. We will take a look at SunTrust Banks, Inc. (NYSE:STI), Ingersoll-Rand Plc (NYSE:IR), Zimmer Biomet Holdings Inc (NYSE:ZBH), and MPLX LP (NYSE:MPLX). This group of stocks' market caps are closest to LYFT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STI,22,592065,-12 IR,39,1625782,-4 ZBH,35,1765125,-1 MPLX,10,399099,-1 Average,26.5,1095518,-4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $1096 million. That figure was $2154 million in LYFT's case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Lyft, Inc. (NASDAQ:LYFT) 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. Unfortunately LYFT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LYFT were disappointed as the stock returned -30% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.