Did Hedge Funds Make The Right Call On Sabre Corporation (SABR)?

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 Sabre Corporation (NASDAQ:SABR) and determine whether hedge funds had an edge regarding this stock.

Is Sabre Corporation (NASDAQ:SABR) undervalued? Prominent investors were taking an optimistic view. The number of long hedge fund positions rose by 6 lately. Our calculations also showed that SABR 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.

According to most traders, hedge funds are perceived as worthless, old investment vehicles of the past. While there are over 8000 funds in operation at the moment, Our researchers hone in on the leaders of this club, approximately 850 funds. These investment experts handle most of the hedge fund industry’s total capital, and by shadowing their matchless stock picks, Insider Monkey has discovered numerous investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s take a glance at the key hedge fund action regarding Sabre Corporation (NASDAQ:SABR).

What have hedge funds been doing with Sabre Corporation (NASDAQ:SABR)?

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SABR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Eminence Capital held the most valuable stake in Sabre Corporation (NASDAQ:SABR), which was worth $23.6 million at the end of the third quarter. On the second spot was SRS Investment Management which amassed $22.6 million worth of shares. D E Shaw, Balyasny Asset Management, and Renaissance Technologies 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 MIK Capital allocated the biggest weight to Sabre Corporation (NASDAQ:SABR), around 1.19% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to SABR.

As aggregate interest increased, specific money managers were breaking ground themselves. Eminence Capital, managed by Ricky Sandler, assembled the most outsized position in Sabre Corporation (NASDAQ:SABR). Eminence Capital had $23.6 million invested in the company at the end of the quarter. Karthik Sarma’s SRS Investment Management also made a $22.6 million investment in the stock during the quarter. The following funds were also among the new SABR investors: Dmitry Balyasny’s Balyasny Asset Management, Kamyar Khajavi’s MIK Capital, and David Harding’s Winton Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Sabre Corporation (NASDAQ:SABR). These stocks are ABM Industries, Inc. (NYSE:ABM), Columbia Financial, Inc. (NASDAQ:CLBK), SPS Commerce, Inc. (NASDAQ:SPSC), and Targa Resources Corp (NYSE:TRGP). This group of stocks’ market valuations match SABR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABM 18 46833 6
CLBK 10 41683 -1
SPSC 16 137949 -8
TRGP 29 104380 2
Average 18.25 82711 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $134 million in SABR’s case. Targa Resources Corp (NYSE:TRGP) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Sabre Corporation (NASDAQ:SABR) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SABR as the stock returned 35.9% in Q2 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.