Wedgewood: “Booking (BKNG) to Disproportionately Benefit from the Reopening of Int’l Borders”

Wedgewood Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 11.8% was recorded by the fund for the first half of 2021, outperforming the S&P 500 that delivered an 8.6% return for the same period, but slightly below the 11.9% gain of Russell 1000 Growth Index. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Wedgewood Partners, the fund mentioned Booking Holdings Inc. (NASDAQ: BKNG), and discussed its stance on the firm. Booking Holdings Inc. is a Norwalk, Connecticut-based travel company, that currently has an $88.04 billion market capitalization. BKNG delivered a -3.71% return since the beginning of the year, while its 12-month revenues are up by 23.82%. The stock closed at $2,144.72 per share on July 16, 2021.

Here is what Wedgewood Partners has to say about Booking Holdings Inc. in its Q2 2021 investor letter:

Booking Holdings reported results that were down substantially relative to 2020 as they lapped the last portions of the last non-COVID-19 affected quarter. The Company is more heavily weighted towards European markets which have been slower to re-open compared to the U.S. and Mexico. In its U.S. market, Booking has already seen a return to room night growth and saw the U.K. approach a level flat with 2019 (pre-COVID). Looking forward, we expect Booking to disproportionately benefit from the reopening of international borders as travelers have several years of savings and pent-up travel demand waiting to be deployed. In addition, we believe the market does not yet appreciate Booking’s large and growing alternative accommodations business, which we view is second in bookings only to Airbnb.”

Based on our calculations, Booking Holdings Inc. (NASDAQ: BKNG) ranks 18th in our list of the 30 Most Popular Stocks Among Hedge Funds. Booking Holdings Inc. was in 103 hedge fund portfolios at the end of the first quarter of 2021, compared to 108 funds in the fourth quarter of 2020. BKNG delivered a -13.41% return in the past 3 months.

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 115 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.

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