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Hedge Fund Consensus Stocks vs. Carvana Co. (CVNA) In 2019

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Carvana Co. (NYSE:CVNA) changed recently.

Is Carvana Co. (NYSE:CVNA) a bargain? Hedge funds are becoming more confident. The number of long hedge fund bets advanced by 3 recently. Our calculations also showed that CVNA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). CVNA was in 48 hedge funds’ portfolios at the end of the third quarter of 2019. There were 45 hedge funds in our database with CVNA holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman Tiger Global Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a gander at the recent hedge fund action surrounding Carvana Co. (NYSE:CVNA).

How have hedgies been trading Carvana Co. (NYSE:CVNA)?

Heading into the fourth quarter of 2019, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CVNA over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is CVNA A Good Stock To Buy?

More specifically, Spruce House Investment Management was the largest shareholder of Carvana Co. (NYSE:CVNA), with a stake worth $369.6 million reported as of the end of September. Trailing Spruce House Investment Management was Tiger Global Management, which amassed a stake valued at $324.3 million. CAS Investment Partners, Whale Rock Capital Management, and Goodnow Investment Group 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 CAS Investment Partners allocated the biggest weight to Carvana Co. (NYSE:CVNA), around 37.97% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, setting aside 19.82 percent of its 13F equity portfolio to CVNA.

Now, specific money managers were breaking ground themselves. D E Shaw, managed by David E. Shaw, initiated the largest position in Carvana Co. (NYSE:CVNA). D E Shaw had $93.5 million invested in the company at the end of the quarter. Christian Leone’s Luxor Capital Group also made a $82.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Christian Leone’s Luxor Capital Group, and Andreas Halvorsen’s Viking Global.

Let’s now take a look at hedge fund activity in other stocks similar to Carvana Co. (NYSE:CVNA). We will take a look at Booz Allen Hamilton Holding Corporation (NYSE:BAH), Elanco Animal Health Incorporated (NYSE:ELAN), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Marathon Oil Corporation (NYSE:MRO). This group of stocks’ market caps match CVNA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAH 33 469671 2
ELAN 24 359109 -3
BIO 39 1091143 3
MRO 35 394969 3
Average 32.75 578723 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $579 million. That figure was $2001 million in CVNA’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Carvana Co. (NYSE:CVNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CVNA as the stock returned 191.1% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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