Hedge Funds Are Done Buying Godaddy Inc (GDDY)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

Is Godaddy Inc (NYSE:GDDY) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Godaddy Inc (NYSE:GDDY) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 51 hedge funds’ portfolios at the end of December. At the end of this article we will also compare GDDY to other stocks including Tyler Technologies, Inc. (NYSE:TYL), EPAM Systems Inc (NYSE:EPAM), and Molson Coors Beverage Company (NYSE:TAP) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a lot of metrics investors have at their disposal to appraise publicly traded companies. A couple of the less utilized metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top money managers can outperform the broader indices by a superb margin (see the details here).

Ricky Sandler of Eminence Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding Godaddy Inc (NYSE:GDDY).

How have hedgies been trading Godaddy Inc (NYSE:GDDY)?

At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in GDDY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of Godaddy Inc (NYSE:GDDY), with a stake worth $413 million reported as of the end of September. Trailing Select Equity Group was Eminence Capital, which amassed a stake valued at $271.8 million. 12 West Capital Management, Renaissance Technologies, and BlueSpruce Investments 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 Permian Investment Partners allocated the biggest weight to Godaddy Inc (NYSE:GDDY), around 25.79% of its 13F portfolio. 12 West Capital Management is also relatively very bullish on the stock, designating 16.44 percent of its 13F equity portfolio to GDDY.

Since Godaddy Inc (NYSE:GDDY) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers that decided to sell off their entire stakes by the end of the third quarter. Interestingly, John Armitage’s Egerton Capital Limited dumped the biggest investment of the 750 funds watched by Insider Monkey, comprising close to $89.1 million in stock. Clifton S. Robbins’s fund, Blue Harbour Group, also sold off its stock, about $81.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Godaddy Inc (NYSE:GDDY). We will take a look at Tyler Technologies, Inc. (NYSE:TYL), EPAM Systems Inc (NYSE:EPAM), Molson Coors Beverage Company (NYSE:TAP), and Ally Financial Inc (NYSE:ALLY). This group of stocks’ market caps are closest to GDDY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TYL 21 528540 -10
EPAM 28 324342 0
TAP 31 403494 5
ALLY 54 1809697 -1
Average 33.5 766518 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $767 million. That figure was $2626 million in GDDY’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Tyler Technologies, Inc. (NYSE:TYL) is the least popular one with only 21 bullish hedge fund positions. Godaddy Inc (NYSE:GDDY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on GDDY as the stock returned -12.1% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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