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Were Hedge Funds Right About Crowding Into GrubHub Inc (GRUB)?

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Abigail Fisher
·6 min read
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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of GrubHub Inc (NYSE:GRUB).

Is GrubHub Inc (NYSE:GRUB) undervalued? Money managers were becoming hopeful. The number of long hedge fund bets went up by 20 in recent months. GrubHub Inc (NYSE:GRUB) was in 52 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GRUB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 32 hedge funds in our database with GRUB holdings at the end of March.

Video: 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 S&P 500 ETFs by more than 56 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. 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.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a look at the new hedge fund action regarding GrubHub Inc (NYSE:GRUB).

What does smart money think about GrubHub Inc (NYSE:GRUB)?

Heading into the third quarter of 2020, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 63% from the first quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in GRUB a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of GrubHub Inc (NYSE:GRUB), with a stake worth $128.8 million reported as of the end of September. Trailing D E Shaw was Carlson Capital, which amassed a stake valued at $117.4 million. Pelham Capital, Polar Capital, and Magnetar 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 Pelham Capital allocated the biggest weight to GrubHub Inc (NYSE:GRUB), around 11.16% of its 13F portfolio. Marathon Partners is also relatively very bullish on the stock, setting aside 9.18 percent of its 13F equity portfolio to GRUB.

Consequently, key hedge funds have jumped into GrubHub Inc (NYSE:GRUB) headfirst. Carlson Capital, managed by Clint Carlson, created the largest position in GrubHub Inc (NYSE:GRUB). Carlson Capital had $117.4 million invested in the company at the end of the quarter. Ross Turner's Pelham Capital also made a $106.9 million investment in the stock during the quarter. The following funds were also among the new GRUB investors: Brian Ashford-Russell and Tim Woolley's Polar Capital, Glen Kacher's Light Street Capital, and Carl Tiedemann and Michael Tiedemann's TIG Advisors.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as GrubHub Inc (NYSE:GRUB) but similarly valued. We will take a look at Federal Realty Investment Trust (NYSE:FRT), Plains All American Pipeline, L.P. (NYSE:PAA), Amedisys Inc (NASDAQ:AMED), Penumbra Inc (NYSE:PEN), Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), United Microelectronics Corp (NYSE:UMC), and Cree, Inc. (NASDAQ:CREE). All of these stocks' market caps match GRUB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRT,20,76045,-4 PAA,9,65144,1 AMED,30,375114,10 PEN,20,263196,0 OLLI,24,179330,5 UMC,11,110335,-4 CREE,17,597780,1 Average,18.7,238135,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $1080 million in GRUB's case. Amedisys Inc (NASDAQ:AMED) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks GrubHub Inc (NYSE:GRUB) is more popular among hedge funds. Our overall hedge fund sentiment score for GRUB is 90. 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 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 30% in 2020 through October 23rd and still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on GRUB, though not to the same extent, as the stock returned 12.9% since the end of June (through October 23rd) and outperformed the market as well.

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

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