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Is CoStar Group Inc (CSGP) A Good Stock To Buy?

In this article you are going to find out whether hedge funds think CoStar Group Inc (NASDAQ:CSGP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

CoStar Group Inc (NASDAQ:CSGP) investors should pay attention to a decrease in hedge fund interest of late. CSGP was in 40 hedge funds’ portfolios at the end of the first quarter of 2020. There were 44 hedge funds in our database with CSGP positions at the end of the previous quarter. Our calculations also showed that CSGP 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.

To the average investor there are a large number of metrics shareholders put to use to grade publicly traded companies. A couple of the most underrated metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top investment managers can beat the broader indices by a very impressive margin (see the details here).

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the latest hedge fund action encompassing CoStar Group Inc (NASDAQ:CSGP).

Hedge fund activity in CoStar Group Inc (NASDAQ:CSGP)

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in CSGP 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 CoStar Group Inc (NASDAQ:CSGP), with a stake worth $360 million reported as of the end of September. Trailing Select Equity Group was Melvin Capital Management, which amassed a stake valued at $357.6 million. Akre Capital Management, Bares Capital Management, and Zevenbergen Capital 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 Wildcat Capital Management allocated the biggest weight to CoStar Group Inc (NASDAQ:CSGP), around 23.78% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, dishing out 7.99 percent of its 13F equity portfolio to CSGP.

Since CoStar Group Inc (NASDAQ:CSGP) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that decided to sell off their full holdings heading into Q4. Interestingly, Leon Shaulov’s Maplelane Capital dumped the biggest position of the 750 funds watched by Insider Monkey, totaling about $23.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $14 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CoStar Group Inc (NASDAQ:CSGP) but similarly valued. These stocks are V.F. Corporation (NYSE:VFC), ResMed Inc. (NYSE:RMD), PACCAR Inc (NASDAQ:PCAR), and Tyson Foods, Inc. (NYSE:TSN). This group of stocks’ market values match CSGP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VFC 19 171262 -10
RMD 33 167543 12
PCAR 38 486230 2
TSN 41 906465 -17
Average 32.75 432875 -3.25

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 $433 million. That figure was $1690 million in CSGP’s case. Tyson Foods, Inc. (NYSE:TSN) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 19 bullish hedge fund positions. CoStar Group Inc (NASDAQ:CSGP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately CSGP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CSGP were disappointed as the stock returned 11.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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