Was The Smart Money Right About CoStar Group Inc (CSGP)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is CoStar Group Inc (NASDAQ:CSGP), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is CoStar Group Inc (NASDAQ:CSGP) a buy, sell, or hold? The smart money was taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 4 recently. CoStar Group Inc (NASDAQ:CSGP) was in 51 hedge funds’ portfolios at the end of December. The all time high for this statistic is 55. Our calculations also showed that CSGP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 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 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 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.

Charles Akre Akre Capital Management

Charles Akre of Akre Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks 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. With all of this in mind let’s go over the recent hedge fund action surrounding CoStar Group Inc (NASDAQ:CSGP).

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

At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the third quarter of 2020. By comparison, 44 hedge funds held shares or bullish call options in CSGP 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, Akre Capital Management was the largest shareholder of CoStar Group Inc (NASDAQ:CSGP), with a stake worth $892.8 million reported as of the end of December. Trailing Akre Capital Management was Alkeon Capital Management, which amassed a stake valued at $362.4 million. Bares Capital Management, Pelham Capital, and Select Equity 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 Pelham Capital allocated the biggest weight to CoStar Group Inc (NASDAQ:CSGP), around 12.36% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, earmarking 11.66 percent of its 13F equity portfolio to CSGP.

Judging by the fact that CoStar Group Inc (NASDAQ:CSGP) has experienced declining sentiment from the smart money, it’s safe to say that there was a specific group of funds who were dropping their positions entirely last quarter. At the top of the heap, James Parsons’s Junto Capital Management dumped the largest stake of the 750 funds followed by Insider Monkey, valued at close to $64 million in stock, and Ravi Chopra’s Azora Capital was right behind this move, as the fund sold off about $6.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to CoStar Group Inc (NASDAQ:CSGP). We will take a look at Agilent Technologies Inc. (NYSE:A), General Mills, Inc. (NYSE:GIS), Xcel Energy Inc (NASDAQ:XEL), Travelers Companies Inc (NYSE:TRV), DexCom, Inc. (NASDAQ:DXCM), Aptiv PLC (NYSE:APTV), and Parker-Hannifin Corporation (NYSE:PH). All of these stocks’ market caps match CSGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
A 45 3507911 6
GIS 39 952845 3
XEL 28 289526 6
TRV 34 405824 -1
DXCM 52 1664615 -6
APTV 44 1354021 6
PH 56 1601655 5
Average 42.6 1396628 2.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.6 hedge funds with bullish positions and the average amount invested in these stocks was $1397 million. That figure was $2882 million in CSGP’s case. Parker-Hannifin Corporation (NYSE:PH) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 28 bullish hedge fund positions. CoStar Group Inc (NASDAQ:CSGP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSGP is 69.9. 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. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately CSGP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CSGP were disappointed as the stock returned -7.6% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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