Is Callaway Golf (ELY) Stock A Buy or Sell?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Callaway Golf Company (NYSE:ELY)? The smart money sentiment can provide an answer to this question.

Is ELY stock a buy or sell? Callaway Golf Company (NYSE:ELY) investors should be aware of an increase in enthusiasm from smart money recently. Callaway Golf Company (NYSE:ELY) was in 40 hedge funds’ portfolios at the end of December. The all time high for this statistic is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with ELY holdings at the end of September. Our calculations also showed that ELY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).

Jack Ripsteen Tim Ripsteen Potrero Capital

Jack Ripsteen of Potrero Capital Research

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s analyze the fresh hedge fund action surrounding Callaway Golf Company (NYSE:ELY).

Do Hedge Funds Think ELY Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in ELY 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.

More specifically, Fisher Asset Management was the largest shareholder of Callaway Golf Company (NYSE:ELY), with a stake worth $86.7 million reported as of the end of December. Trailing Fisher Asset Management was Cadian Capital, which amassed a stake valued at $83.8 million. Nitorum Capital, Woodson Capital Management, and Citadel 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 Marlowe Partners allocated the biggest weight to Callaway Golf Company (NYSE:ELY), around 8.78% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, earmarking 8.31 percent of its 13F equity portfolio to ELY.

As industrywide interest jumped, some big names have been driving this bullishness. Woodson Capital Management, managed by James Woodson Davis, established the biggest position in Callaway Golf Company (NYSE:ELY). Woodson Capital Management had $42.9 million invested in the company at the end of the quarter. Malcolm Levine’s Dendur Capital also initiated a $34.9 million position during the quarter. The following funds were also among the new ELY investors: David Steinberg and Eric Udoff’s Marlowe Partners, Jack Ripsteen’s Potrero Capital Research, and David MacKnight’s One Fin Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Callaway Golf Company (NYSE:ELY). We will take a look at iRobot Corporation (NASDAQ:IRBT), Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Plexus Corp. (NASDAQ:PLXS), Stoke Therapeutics, Inc. (NASDAQ:STOK), Fluor Corporation (NYSE:FLR), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and Seres Therapeutics Inc (NASDAQ:MCRB). This group of stocks’ market caps are closest to ELY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IRBT 22 167299 -3
IBA 2 33488 -1
PLXS 17 76950 -5
STOK 13 320293 4
FLR 20 148683 3
BBBY 33 535284 1
MCRB 17 396225 5
Average 17.7 239746 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $240 million. That figure was $489 million in ELY’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Callaway Golf Company (NYSE:ELY) is more popular among hedge funds. Our overall hedge fund sentiment score for ELY is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on ELY as the stock returned 18.4% since the end of December (through 3/19) 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.