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Were Hedge Funds Right About Uber Technologies, Inc. (UBER)?

Reymerlyn Martin
·6 min read

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Uber Technologies, Inc. (NYSE:UBER).

Uber Technologies, Inc. (NYSE:UBER) was in 94 hedge funds' portfolios at the end of June. The all time high for this statistics is 97. UBER has seen a small decrease in enthusiasm from smart money lately since March. However, our calculations also showed that UBER currently ranks 26th 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

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 glance at the fresh hedge fund action regarding Uber Technologies, Inc. (NYSE:UBER).

How are hedge funds trading Uber Technologies, Inc. (NYSE:UBER)?

At second quarter's end, a total of 94 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. By comparison, 56 hedge funds held shares or bullish call options in UBER a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Uber Technologies, Inc. (NYSE:UBER) was held by Altimeter Capital Management, which reported holding $898.6 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $598.6 million position. Other investors bullish on the company included Viking Global, Tiger Global Management LLC, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Glade Brook Capital Partners allocated the biggest weight to Uber Technologies, Inc. (NYSE:UBER), around 95.46% of its 13F portfolio. Tao Capital is also relatively very bullish on the stock, earmarking 44.25 percent of its 13F equity portfolio to UBER.

Judging by the fact that Uber Technologies, Inc. (NYSE:UBER) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedgies who sold off their entire stakes in the second quarter. At the top of the heap, Brandon Haley's Holocene Advisors cut the largest position of all the hedgies watched by Insider Monkey, valued at about $36.8 million in stock, and Mark Moore's ThornTree Capital Partners was right behind this move, as the fund dropped about $32.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Uber Technologies, Inc. (NYSE:UBER) but similarly valued. These stocks are Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR), CSX Corporation (NASDAQ:CSX), Air Products & Chemicals, Inc. (NYSE:APD), Vale SA (NYSE:VALE), The Sherwin-Williams Company (NYSE:SHW), Autodesk, Inc. (NASDAQ:ADSK), and Brookfield Asset Management Inc. (NYSE:BAM). This group of stocks' market values are similar to UBER's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PBR,29,1409778,-3 CSX,46,2290942,-11 APD,37,439684,-4 VALE,29,1613921,1 SHW,53,1830766,-4 ADSK,67,3014972,2 BAM,33,1001293,-4 Average,42,1657337,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1657 million. That figure was $5389 million in UBER's case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Uber Technologies, Inc. (NYSE:UBER) is more popular among hedge funds. Our overall hedge fund sentiment score for UBER is 81.1 (out of 100). 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately UBER wasn't nearly as popular as these 10 stocks and hedge funds that were betting on UBER were disappointed as the stock returned 8.5% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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