Is IAC Stock A Buy or Sell?

In this article you are going to find out whether hedge funds think IAC/InterActiveCorp (NASDAQ:IAC) 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.

Is IAC stock a buy or sell? Investors who are in the know were in a pessimistic mood. The number of bullish hedge fund bets were trimmed by 5 recently. IAC/InterActiveCorp (NASDAQ:IAC) was in 67 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 72. Our calculations also showed that IAC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 72 hedge funds in our database with IAC holdings at the end of September.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Christian Leone of Luxor Capital Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 best cheap stocks to buy now to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Now we’re going to take a glance at the latest hedge fund action regarding IAC/InterActiveCorp (NASDAQ:IAC).

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

At fourth quarter’s end, a total of 67 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the third quarter of 2020. By comparison, 71 hedge funds held shares or bullish call options in IAC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Luxor Capital Group held the most valuable stake in IAC/InterActiveCorp (NASDAQ:IAC), which was worth $286.9 million at the end of the fourth quarter. On the second spot was ShawSpring Partners which amassed $194 million worth of shares. Echo Street Capital Management, Scopus Asset Management, and Iridian Asset Management 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 ShawSpring Partners allocated the biggest weight to IAC/InterActiveCorp (NASDAQ:IAC), around 27.38% of its 13F portfolio. Tiger Eye Capital is also relatively very bullish on the stock, designating 18.78 percent of its 13F equity portfolio to IAC.

Judging by the fact that IAC/InterActiveCorp (NASDAQ:IAC) has faced bearish sentiment from the smart money, we can see that there was a specific group of fund managers that slashed their entire stakes in the fourth quarter. It’s worth mentioning that Andrew Rechtschaffen’s AREX Capital Management dropped the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $60.4 million in stock. Himanshu Gulati’s fund, Antara Capital, also sold off its stock, about $28 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to IAC/InterActiveCorp (NASDAQ:IAC). These stocks are Royal Caribbean Group (NYSE:RCL), United Rentals, Inc. (NYSE:URI), Halliburton Company (NYSE:HAL), Trimble Inc. (NASDAQ:TRMB), Zendesk Inc (NYSE:ZEN), Energy Transfer L.P. (NYSE:ET), and HEICO Corporation (NYSE:HEI). This group of stocks’ market valuations are closest to IAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RCL 37 554165 7
URI 46 1060784 6
HAL 31 1027399 -1
TRMB 21 1330232 -14
ZEN 58 1858196 -1
ET 25 543271 -6
HEI 44 786027 1
Average 37.4 1022868 -1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1023 million. That figure was $2231 million in IAC’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Trimble Inc. (NASDAQ:TRMB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks IAC/InterActiveCorp (NASDAQ:IAC) is more popular among hedge funds. Our overall hedge fund sentiment score for IAC is 77.9. 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 7% in 2021 through March 12th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on IAC as the stock returned 27.2% since the end of December (through 3/12) 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.