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 Carvana Co. (NYSE:CVNA)? The smart money sentiment can provide an answer to this question.
Is CVNA a good stock to buy now? Carvana Co. (NYSE:CVNA) has seen a decrease in enthusiasm from smart money recently. Carvana Co. (NYSE:CVNA) was in 53 hedge funds’ portfolios at the end of September. The all time high for this statistics is 57. There were 57 hedge funds in our database with CVNA holdings at the end of June. 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 for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. Now let’s take a peek at the recent hedge fund action regarding Carvana Co. (NYSE:CVNA).
What does smart money think about Carvana Co. (NYSE:CVNA)?
At third quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 50 hedge funds held shares or bullish call options in CVNA 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, Tiger Global Management LLC was the largest shareholder of Carvana Co. (NYSE:CVNA), with a stake worth $1341.2 million reported as of the end of September. Trailing Tiger Global Management LLC was D1 Capital Partners, which amassed a stake valued at $1106.4 million. Spruce House Investment Management, CAS Investment Partners, and D E Shaw 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 55.77% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, setting aside 33.06 percent of its 13F equity portfolio to CVNA.
Because Carvana Co. (NYSE:CVNA) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers that elected to cut their entire stakes last quarter. It’s worth mentioning that Colin Moran’s Abdiel Capital Advisors cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $208.5 million in stock. Lone Pine Capital, also said goodbye to its stock, about $102.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Carvana Co. (NYSE:CVNA) but similarly valued. These stocks are General Mills, Inc. (NYSE:GIS), Electronic Arts Inc. (NASDAQ:EA), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Bank of Montreal (NYSE:BMO), BCE Inc. (NYSE:BCE), Prudential Public Limited Company (NYSE:PUK), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks’ market valuations are similar to CVNA’s market valuation.
|No of HFs with positions
|Total Value of HF Positions (x1000)
|Change in HF Position
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $853 million. That figure was $6020 million in CVNA’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 bullish hedge fund positions. Carvana Co. (NYSE:CVNA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVNA is 71.1. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately CVNA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CVNA were disappointed as the stock returned 1.1% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.