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Did Hedge Funds Make The Right Call On Groupon Inc (GRPN)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Groupon Inc (NASDAQ:GRPN) and determine whether hedge funds skillfully traded this stock.

Groupon Inc (NASDAQ:GRPN) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. GRPN was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 26 hedge funds in our database with GRPN positions at the end of the previous quarter. Our calculations also showed that GRPN 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 today’s marketplace there are a lot of methods market participants employ to appraise publicly traded companies. A couple of the less known methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can outperform their index-focused peers by a solid margin (see the details here).

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

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. Now let’s analyze the new hedge fund action regarding Groupon Inc (NASDAQ:GRPN).

Hedge fund activity in Groupon Inc (NASDAQ:GRPN)

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in GRPN 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.

When looking at the institutional investors followed by Insider Monkey, MIG Capital, managed by Richard Merage, holds the biggest position in Groupon Inc (NASDAQ:GRPN). MIG Capital has a $31.9 million position in the stock, comprising 3.8% of its 13F portfolio. Coming in second is PAR Capital Management, led by Paul Reeder and Edward Shapiro, holding a $21.4 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Groupon Inc (NASDAQ:GRPN), around 3.75% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, earmarking 1.34 percent of its 13F equity portfolio to GRPN.

Due to the fact that Groupon Inc (NASDAQ:GRPN) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds that slashed their positions entirely in the first quarter. At the top of the heap, Claus Moller’s P2 Capital Partners said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, worth close to $44.4 million in stock. Joshua Nash’s fund, Ulysses Management, also cut its stock, about $20.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 8 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Groupon Inc (NASDAQ:GRPN) but similarly valued. We will take a look at IMAX Corporation (NYSE:IMAX), Premier Financial Corp. (NASDAQ:FDEF), Oi SA (NYSE:OIBR), and Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). All of these stocks’ market caps are similar to GRPN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IMAX 17 38681 3
FDEF 10 40954 1
OIBR 8 58613 -4
VNDA 20 178955 0
Average 13.75 79301 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $74 million in GRPN’s case. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is the most popular stock in this table. On the other hand Oi SA (NYSE:OIBR) is the least popular one with only 8 bullish hedge fund positions. Groupon Inc (NASDAQ:GRPN) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately GRPN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GRPN were disappointed as the stock returned -22.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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