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Were Hedge Funds Right About Buying eBay Inc (EBAY)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of eBay Inc (NASDAQ:EBAY) based on that data and determine whether they were really smart about the stock.

Is eBay Inc (NASDAQ:EBAY) a healthy stock for your portfolio? The best stock pickers were in an optimistic mood. The number of bullish hedge fund positions inched up by 1 in recent months. Our calculations also showed that EBAY 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.

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 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 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the new hedge fund action regarding eBay Inc (NASDAQ:EBAY).

How are hedge funds trading eBay Inc (NASDAQ:EBAY)?

Heading into the second quarter of 2020, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. By comparison, 48 hedge funds held shares or bullish call options in EBAY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EBAY A Good Stock To Buy?

The largest stake in eBay Inc (NASDAQ:EBAY) was held by Baupost Group, which reported holding $964.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $375.4 million position. Other investors bullish on the company included Elliott Management, Citadel Investment Group, and Starboard Value LP. In terms of the portfolio weights assigned to each position Baupost Group allocated the biggest weight to eBay Inc (NASDAQ:EBAY), around 14.24% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, setting aside 9.65 percent of its 13F equity portfolio to EBAY.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Ako Capital, managed by Nicolai Tangen, established the most outsized position in eBay Inc (NASDAQ:EBAY). Ako Capital had $169.8 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $53.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Josh Resnick’s Jericho Capital Asset Management, Benjamin Pass’s TOMS Capital, and Richard Mashaal’s Rima Senvest Management.

Let’s check out hedge fund activity in other stocks similar to eBay Inc (NASDAQ:EBAY). These stocks are Telefonica S.A. (NYSE:TEF), The Kroger Co. (NYSE:KR), Phillips 66 (NYSE:PSX), and NXP Semiconductors NV (NASDAQ:NXPI). This group of stocks’ market values are similar to EBAY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEF 7 16531 -2
KR 43 1581591 12
PSX 43 420207 -3
NXPI 52 1234255 -28
Average 36.25 813146 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $813 million. That figure was $3096 million in EBAY’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 7 bullish hedge fund positions. eBay Inc (NASDAQ:EBAY) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on EBAY as the stock returned 75.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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