Did Hedge Funds Make The Right Call On Gogo Inc (GOGO) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Gogo Inc (NASDAQ:GOGO) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Gogo Inc (NASDAQ:GOGO) an attractive investment today? Prominent investors were becoming less hopeful. The number of long hedge fund bets retreated by 3 recently. Our calculations also showed that GOGO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a peek at the recent hedge fund action regarding Gogo Inc (NASDAQ:GOGO).

How have hedgies been trading Gogo Inc (NASDAQ:GOGO)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in GOGO a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Mudrick Capital Management was the largest shareholder of Gogo Inc (NASDAQ:GOGO), with a stake worth $18.5 million reported as of the end of September. Trailing Mudrick Capital Management was Senator Investment Group, which amassed a stake valued at $6.5 million. Renaissance Technologies, Tenzing Global Investors, and Arrowstreet 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 Mudrick Capital Management allocated the biggest weight to Gogo Inc (NASDAQ:GOGO), around 22.65% of its 13F portfolio. Tenzing Global Investors is also relatively very bullish on the stock, earmarking 1.64 percent of its 13F equity portfolio to GOGO.

Judging by the fact that Gogo Inc (NASDAQ:GOGO) has faced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few funds that elected to cut their entire stakes by the end of the first quarter. At the top of the heap, Michael Kahan and Jeremy Kahan’s North Peak Capital dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $40 million in stock, and Doug Silverman and Alexander Klabin’s Senator Investment Group was right behind this move, as the fund dropped about $1.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Gogo Inc (NASDAQ:GOGO) but similarly valued. These stocks are Vista Oil & Gas, S.A.B. de C.V. (NYSE:VIST), Cresud Sociedad Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY), Capital Bancorp, Inc. (NASDAQ:CBNK), and P.A.M. Transportation Services, Inc. (NASDAQ:PTSI). This group of stocks’ market values resemble GOGO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIST 7 27464 0
CRESY 7 9698 1
CBNK 2 511 0
PTSI 1 11629 0
Average 4.25 12326 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $40 million in GOGO’s case. Vista Oil & Gas, S.A.B. de C.V. (NYSE:VIST) is the most popular stock in this table. On the other hand P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Gogo Inc (NASDAQ:GOGO) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on GOGO as the stock returned 48.1% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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