Is GRUB A Good Stock To Buy Now?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding GrubHub Inc (NYSE:GRUB).

Is GrubHub Inc (NYSE:GRUB) worth your attention right now? Money managers were taking a bearish view. The number of long hedge fund bets went down by 3 in recent months. GrubHub Inc (NYSE:GRUB) was in 49 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. Our calculations also showed that GRUB 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). There were 52 hedge funds in our database with GRUB positions at the end of the second quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Clint Carlson of Carlson Capital

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 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. With all of this in mind we’re going to take a peek at the key hedge fund action regarding GrubHub Inc (NYSE:GRUB).

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

At third quarter’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in GRUB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Pentwater Capital Management was the largest shareholder of GrubHub Inc (NYSE:GRUB), with a stake worth $181.5 million reported as of the end of September. Trailing Pentwater Capital Management was D E Shaw, which amassed a stake valued at $175.4 million. Omni Partners, Polar Capital, and Carlson Capital 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 Hunting Hill Global Capital allocated the biggest weight to GrubHub Inc (NYSE:GRUB), around 11.86% of its 13F portfolio. Omni Partners is also relatively very bullish on the stock, designating 9.33 percent of its 13F equity portfolio to GRUB.

Because GrubHub Inc (NYSE:GRUB) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds that elected to cut their full holdings heading into Q4. It’s worth mentioning that Ross Turner’s Pelham Capital dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $106.9 million in stock. Glen Kacher’s fund, Light Street Capital, also sold off its stock, about $59 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to GrubHub Inc (NYSE:GRUB). These stocks are Lamar Advertising Company (REIT) (NASDAQ:LAMR), Dolby Laboratories, Inc. (NYSE:DLB), Novavax, Inc. (NASDAQ:NVAX), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), Athene Holding Ltd. (NYSE:ATH), Adaptive Biotechnologies Corporation (NASDAQ:ADPT), and CF Industries Holdings, Inc. (NYSE:CF). This group of stocks’ market valuations match GRUB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LAMR 37 380864 -7
DLB 35 596301 7
NVAX 36 611401 18
IONS 25 312130 2
ATH 31 853235 -2
ADPT 26 2671964 -2
CF 34 586641 -3
Average 32 858934 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $859 million. That figure was $1608 million in GRUB’s case. Lamar Advertising Company (REIT) (NASDAQ:LAMR) is the most popular stock in this table. On the other hand Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks GrubHub Inc (NYSE:GRUB) is more popular among hedge funds. Our overall hedge fund sentiment score for GRUB is 80.3. 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 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Unfortunately GRUB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GRUB were disappointed as the stock returned -7.5% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market in 2020.

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