Is CoStar Group Inc (CSGP) Worthy of Your Portfolio?

How do you pick the next stock to invest in? One way would be to spend hours 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 CoStar Group Inc (NASDAQ:CSGP) .

Is CoStar Group Inc (NASDAQ:CSGP) the right investment to pursue these days? Investors who are in the know seem to be in a bullish mood as the number of bullish hedge fund positions went up by three to 20 between July and September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Yandex NV (NASDAQ:YNDX), Spectrum Brands Holdings, Inc. (NYSE:SPB), and Crown Holdings, Inc. (NYSE:CCK) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, we’re going to take a look at the latest action regarding CoStar Group Inc (NASDAQ:CSGP).

How are hedge funds trading CoStar Group Inc (NASDAQ:CSGP)?

At the end of the third quarter, 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, which represents an increase of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CSGP over the last five quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Bares Capital Management, led by Brian Bares, holds the largest position in CoStar Group Inc (NASDAQ:CSGP). Bares Capital Management has a $67.7 million position in the stock, comprising 4% of its 13F portfolio. The second most bullish fund manager is Daruma Asset Management, led by Mariko Gordon, which holds a $58.6 million position; 3.6% of its 13F portfolio is allocated to the company. Some other peers with similar optimism comprise Leonard A. Potter’s Wildcat Capital Management, Christian Leone’s Luxor Capital Group, and Christopher Lyle’s SCGE Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Consequently, key money managers were leading the bulls’ herd. LMR Partners, led by Ben Levine, Andrew Manuel and Stefan Renold, established the most outsized position in CoStar Group Inc (NASDAQ:CSGP). LMR Partners had $3.3 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $1.2 million position during the quarter. The following funds were also among the new CSGP investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, John Overdeck and David Siegel’s Two Sigma Advisors, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as CoStar Group Inc (NASDAQ:CSGP) but similarly valued. We will take a look at Yandex NV (NASDAQ:YNDX), Spectrum Brands Holdings, Inc. (NYSE:SPB), Crown Holdings, Inc. (NYSE:CCK), and Qorvo Inc (NASDAQ:QRVO). This group of stocks’ market values are similar to CSGP’s market value.

As you can see these stocks had an average of 31 investors with bullish positions and the average amount invested in these stocks was $477 million, compared to $304 million in CSGP’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Qorvo Inc (NASDAQ:QRVO) is the least popular one with only 27 investors holding shares. Compared to these stocks CoStar Group Inc (NASDAQ:CSGP) is even less popular than Qorvo Inc (NASDAQ:QRVO). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.