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Is Yelp Inc (YELP) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Yelp Inc (NYSE:YELP).

Is Yelp Inc (NYSE:YELP) undervalued? Investors who are in the know are in a bearish mood. The number of bullish hedge fund positions fell by 2 in recent months. Our calculations also showed that YELP 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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 these. 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 take a peek at the fresh hedge fund action surrounding Yelp Inc (NYSE:YELP).

What does smart money think about Yelp Inc (NYSE:YELP)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards YELP over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is YELP A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Yelp Inc (NYSE:YELP), with a stake worth $64.2 million reported as of the end of September. Trailing D E Shaw was Fisher Asset Management, which amassed a stake valued at $47.7 million. Steadfast Capital Management, Tenzing Global Investors, and Goodnow 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 Tenzing Global Investors allocated the biggest weight to Yelp Inc (NYSE:YELP), around 12.44% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, designating 3.02 percent of its 13F equity portfolio to YELP.

Seeing as Yelp Inc (NYSE:YELP) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of funds that decided to sell off their positions entirely heading into Q4. Intriguingly, C. Jonathan Gattman’s Cloverdale Capital Management cut the biggest stake of all the hedgies watched by Insider Monkey, valued at about $5.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $1.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Yelp Inc (NYSE:YELP) but similarly valued. We will take a look at Compass Minerals International, Inc. (NYSE:CMP), ICF International Inc (NASDAQ:ICFI), GCP Applied Technologies Inc. (NYSE:GCP), and Safety Insurance Group, Inc. (NASDAQ:SAFT). This group of stocks’ market values resemble YELP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMP 16 82499 3
ICFI 10 26175 -1
GCP 12 328231 -8
SAFT 12 47637 -3
Average 12.5 121136 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $236 million in YELP’s case. Compass Minerals International, Inc. (NYSE:CMP) is the most popular stock in this table. On the other hand ICF International Inc (NASDAQ:ICFI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Yelp Inc (NYSE:YELP) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on YELP as the stock returned 40.3% so far in Q2 (through June 10th) 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.