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Was The Smart Money Right About Godaddy Inc (GDDY)?

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With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Godaddy Inc (NYSE:GDDY).

Hedge fund interest in Godaddy Inc (NYSE:GDDY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GDDY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare GDDY to other stocks including Citrix Systems, Inc. (NASDAQ:CTXS), UDR, Inc. (NYSE:UDR), and Fair Isaac Corporation (NYSE:FICO) to get a better sense of its popularity.

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.

Michael Lowenstein Kensico Capital
Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, 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. Keeping this in mind we're going to view the fresh hedge fund action surrounding Godaddy Inc (NYSE:GDDY).

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

At Q2's end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 55 hedge funds with a bullish position in GDDY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Godaddy Inc (NYSE:GDDY) was held by Select Equity Group, which reported holding $1023.1 million worth of stock at the end of June. It was followed by BlueSpruce Investments with a $484.9 million position. Other investors bullish on the company included Brahman Capital, Blacksheep Fund Management, and North Peak Capital. In terms of the portfolio weights assigned to each position North Peak Capital allocated the biggest weight to Godaddy Inc (NYSE:GDDY), around 30.33% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, dishing out 22.64 percent of its 13F equity portfolio to GDDY.

Because Godaddy Inc (NYSE:GDDY) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers that decided to sell off their positions entirely heading into Q3. At the top of the heap, Ken Griffin's Citadel Investment Group dropped the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $73.7 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund said goodbye to about $45.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Godaddy Inc (NYSE:GDDY). We will take a look at Citrix Systems, Inc. (NASDAQ:CTXS), UDR, Inc. (NYSE:UDR), Fair Isaac Corporation (NYSE:FICO), Apollo Global Management Inc (NYSE:APO), Shaw Communications Inc (NYSE:SJR), News Corp (NASDAQ:NWS), and Loews Corporation (NYSE:L). This group of stocks' market values are similar to GDDY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTXS,23,668537,3 UDR,24,251040,-6 FICO,28,1224920,1 APO,37,2617533,-7 SJR,23,697694,2 NWS,19,178722,-2 L,28,212289,7 Average,26,835819,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $836 million. That figure was $2769 million in GDDY's case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Godaddy Inc (NYSE:GDDY) is more popular among hedge funds. Our overall hedge fund sentiment score for GDDY is 76.3. 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. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately GDDY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on GDDY were disappointed as the stock returned -16.3% since the end of the second quarter (through 11/5) 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.