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Were Hedge Funds Right About Their Top Travel Stock Pick?

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With the fourth-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 first quarter of 2021. One of these stocks was Booking Holdings Inc. (NASDAQ:BKNG).

Is Booking Holdings Inc. (NASDAQ:BKNG) a buy, sell, or hold? The best stock pickers were in a pessimistic mood. The number of bullish hedge fund bets went down by 5 in recent months. Booking Holdings Inc. (NASDAQ:BKNG) was in 108 hedge funds' portfolios at the end of December. The all time high for this statistic is 113. Our calculations also showed that BKNG ranked #19 among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 113 hedge funds in our database with BKNG holdings at the end of September.

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).

John Armitage Egerton Capital
John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 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 take a gander at the key hedge fund action regarding Booking Holdings Inc. (NASDAQ:BKNG).

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

At the end of December, a total of 108 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 74 hedge funds held shares or bullish call options in BKNG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is BKNG A Good Stock To Buy?
Is BKNG A Good Stock To Buy?

Among these funds, Melvin Capital Management held the most valuable stake in Booking Holdings Inc. (NASDAQ:BKNG), which was worth $783 million at the end of the fourth quarter. On the second spot was Ako Capital which amassed $611.1 million worth of shares. D1 Capital Partners, GuardCap Asset Management, and Viking Global 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 PAR Capital Management allocated the biggest weight to Booking Holdings Inc. (NASDAQ:BKNG), around 10.52% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 9.73 percent of its 13F equity portfolio to BKNG.

Due to the fact that Booking Holdings Inc. (NASDAQ:BKNG) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that elected to cut their full holdings in the fourth quarter. Interestingly, John Armitage's Egerton Capital Limited said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $257.8 million in stock, and Sharlyn C. Heslam's Stockbridge Partners was right behind this move, as the fund dropped about $150.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds in the fourth quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Booking Holdings Inc. (NASDAQ:BKNG) but similarly valued. These stocks are Goldman Sachs Group, Inc. (NYSE:GS), Uber Technologies, Inc. (NYSE:UBER), CVS Health Corporation (NYSE:CVS), Target Corporation (NYSE:TGT), Fidelity National Information Services Inc. (NYSE:FIS), Airbnb, Inc. (NASDAQ:ABNB), and British American Tobacco plc (NYSE:BTI). This group of stocks' market values are similar to BKNG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GS,76,4607743,6 UBER,135,10094450,35 CVS,56,961205,-5 TGT,78,4065099,21 FIS,88,9181248,0 ABNB,68,1610985,68 BTI,10,832550,3 Average,73,4479040,18.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 73 hedge funds with bullish positions and the average amount invested in these stocks was $4479 million. That figure was $8247 million in BKNG's case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 10 bullish hedge fund positions. Booking Holdings Inc. (NASDAQ:BKNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BKNG is 79.9. 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 BKNG wasn't nearly as successful as these 30 stocks and hedge funds that were betting on BKNG were disappointed as the stock returned 10.3% since the end of December (through 4/19) and slightly underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of 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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