These Hedge Funds Can’t Be More Wrong On Carvana Co. (CVNA)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Carvana Co. (NYSE:CVNA).

Carvana Co. (NYSE:CVNA) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that CVNA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman Tiger Global Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to review the recent hedge fund action surrounding Carvana Co. (NYSE:CVNA).

What does smart money think about Carvana Co. (NYSE:CVNA)?

At the end of the fourth quarter, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CVNA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CVNA A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Spruce House Investment Management, managed by Zachary Sternberg and Benjamin Stein, holds the number one position in Carvana Co. (NYSE:CVNA). Spruce House Investment Management has a $515.5 million position in the stock, comprising 16.8% of its 13F portfolio. The second most bullish fund manager is Tiger Global Management LLC, managed by Chase Coleman, which holds a $452.2 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Clifford A. Sosin’s CAS Investment Partners, Alex Sacerdote’s Whale Rock Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position CAS Investment Partners allocated the biggest weight to Carvana Co. (NYSE:CVNA), around 42.01% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, designating 23.7 percent of its 13F equity portfolio to CVNA.

Consequently, specific money managers were leading the bulls’ herd. Lone Pine Capital, initiated the biggest position in Carvana Co. (NYSE:CVNA). Lone Pine Capital had $92.3 million invested in the company at the end of the quarter. Dennis Goldstein’s Rip Road Capital also initiated a $9.9 million position during the quarter. The other funds with new positions in the stock are Christopher Weldon’s Stamina Capital Management, Campbell Wilson’s Old Well Partners, and Dan Sobol and Lisa Hess’s SkyTop Capital Management.

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 Sun Communities Inc (NYSE:SUI), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Leidos Holdings Inc (NYSE:LDOS), and W.P. Carey Inc. REIT (NYSE:WPC). This group of stocks’ market caps are similar to CVNA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUI 31 399362 13
TTWO 59 1105651 -1
LDOS 27 467199 2
WPC 21 88287 6
Average 34.5 515125 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $2726 million in CVNA’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand W.P. Carey Inc. REIT (NYSE:WPC) is the least popular one with only 21 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. 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 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 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 -36.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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