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Did Hedge Funds Make The Right Call On GrubHub Inc (GRUB) ?

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 GrubHub Inc (NYSE:GRUB) and determine whether hedge funds had an edge regarding this stock.

GrubHub Inc (NYSE:GRUB) shareholders have witnessed a decrease in enthusiasm from smart money lately. GRUB was in 32 hedge funds’ portfolios at the end of the first quarter of 2020. There were 33 hedge funds in our database with GRUB holdings at the end of the previous quarter. Our calculations also showed that GRUB 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the key hedge fund action regarding GrubHub Inc (NYSE:GRUB).

How have hedgies been trading GrubHub Inc (NYSE:GRUB)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GRUB over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in GrubHub Inc (NYSE:GRUB). Citadel Investment Group has a $92.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Marathon Partners, managed by Mario Cibelli, which holds a $32.9 million position; 20.6% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions include Dmitry Balyasny’s Balyasny Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Ari Zweiman’s 683 Capital Partners. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to GrubHub Inc (NYSE:GRUB), around 20.61% of its 13F portfolio. Brightlight Capital is also relatively very bullish on the stock, dishing out 8.72 percent of its 13F equity portfolio to GRUB.

Because GrubHub Inc (NYSE:GRUB) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers who sold off their full holdings by the end of the first quarter. It’s worth mentioning that Ross Turner’s Pelham Capital cut the largest stake of the 750 funds watched by Insider Monkey, valued at about $103.9 million in stock, and Alex Snow’s Lansdowne Partners was right behind this move, as the fund dumped about $73.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as GrubHub Inc (NYSE:GRUB) but similarly valued. We will take a look at Clearway Energy, Inc. (NYSE:CWEN), Nomad Foods Limited (NYSE:NOMD), Exponent, Inc. (NASDAQ:EXPO), and Skechers USA Inc (NYSE:SKX). This group of stocks’ market caps are similar to GRUB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CWEN 17 169906 -6
NOMD 34 444046 -1
EXPO 17 121456 0
SKX 26 485573 -4
Average 23.5 305245 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $305 million. That figure was $373 million in GRUB’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Clearway Energy, Inc. (NYSE:CWEN) is the least popular one with only 17 bullish hedge fund positions. GrubHub Inc (NYSE:GRUB) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on GRUB as the stock returned 72.6% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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