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Were Hedge Funds Right About Piling Into Shopify Inc (SHOP)?

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Debasis Saha
·6 min read
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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 887 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of December 31st, 2020. What do these smart investors think about Shopify Inc (NYSE:SHOP)?

Is Shopify Inc (NYSE:SHOP) a buy, sell, or hold? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets rose by 9 in recent months. Shopify Inc (NYSE:SHOP) was in 90 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 81. This means the bullish number of hedge fund positions in this stock reached another all time high. Our calculations also showed that SHOP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to view the key hedge fund action encompassing Shopify Inc (NYSE:SHOP).

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

At fourth quarter's end, a total of 90 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SHOP over the last 22 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is SHOP A Good Stock To Buy?
Is SHOP A Good Stock To Buy?

More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $2032.2 million reported as of the end of December. Trailing Lone Pine Capital was SCGE Management, which amassed a stake valued at $1012 million. ARK Investment Management, Whale Rock Capital Management, and Coatue Management 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 Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 26.4% of its 13F portfolio. Himension Capital is also relatively very bullish on the stock, designating 16.67 percent of its 13F equity portfolio to SHOP.

As industrywide interest jumped, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the most outsized position in Shopify Inc (NYSE:SHOP). Renaissance Technologies had $223.6 million invested in the company at the end of the quarter. John Armitage's Egerton Capital Limited also initiated a $193.7 million position during the quarter. The following funds were also among the new SHOP investors: Michael Pausic's Foxhaven Asset Management, Zach Schreiber's Point State Capital, and Jay Chen's Himension Capital.

Let's now take a look at hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). These stocks are Anheuser-Busch InBev SA/NV (NYSE:BUD), JD.Com Inc (NASDAQ:JD), Royal Dutch Shell plc (NYSE:RDS), Amgen, Inc. (NASDAQ:AMGN), BHP Group (NYSE:BBL), HDFC Bank Limited (NYSE:HDB), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks' market valuations are similar to SHOP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BUD,18,1294786,0 JD,89,14395875,4 RDS,34,1661345,3 AMGN,49,1039614,4 BBL,18,1215975,2 HDB,31,1535194,-3 CHTR,90,11274858,2 Average,47,4631092,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 47 hedge funds with bullish positions and the average amount invested in these stocks was $4631 million. That figure was $8723 million in SHOP's case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) is the least popular one with only 18 bullish hedge fund positions. Shopify Inc (NYSE:SHOP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHOP 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately SHOP wasn't nearly as popular as these 30 stocks and hedge funds that were betting on SHOP were disappointed as the stock returned 1.2% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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