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Were Hedge Funds Right About Cardlytics, Inc. (CDLX)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Cardlytics, Inc. (NASDAQ:CDLX).

Cardlytics, Inc. (NASDAQ:CDLX) was in 26 hedge funds’ portfolios at the end of December. CDLX shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. There were 19 hedge funds in our database with CDLX holdings at the end of the previous quarter. Our calculations also showed that CDLX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 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 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.

CAS Investment Partners, Cliff Sosin

Clifford Sosin of CAS Investment Partners

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the fresh hedge fund action regarding Cardlytics, Inc. (NASDAQ:CDLX).

What does smart money think about Cardlytics, Inc. (NASDAQ:CDLX)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 37% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in CDLX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, CAS Investment Partners held the most valuable stake in Cardlytics, Inc. (NASDAQ:CDLX), which was worth $177.4 million at the end of the third quarter. On the second spot was Antipodean Advisors which amassed $41.2 million worth of shares. 683 Capital Partners, Tiger Global Management LLC, and JS Capital 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 CAS Investment Partners allocated the biggest weight to Cardlytics, Inc. (NASDAQ:CDLX), around 29.17% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, setting aside 23.59 percent of its 13F equity portfolio to CDLX.

Consequently, some big names have jumped into Cardlytics, Inc. (NASDAQ:CDLX) headfirst. Tiger Global Management LLC, managed by Chase Coleman, established the most valuable position in Cardlytics, Inc. (NASDAQ:CDLX). Tiger Global Management LLC had $28.6 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $25.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Vadim Rubinchik’s Brightlight Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Dipak Patel’s Alight Capital.

Let’s also examine hedge fund activity in other stocks similar to Cardlytics, Inc. (NASDAQ:CDLX). These stocks are Avanos Medical, Inc. (NYSE:AVNS), Chesapeake Energy Corporation (NYSE:CHK), PDC Energy Inc (NASDAQ:PDCE), and HNI Corp (NYSE:HNI). This group of stocks’ market caps are closest to CDLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVNS 8 151007 -6
CHK 19 42424 2
PDCE 32 261539 6
HNI 20 73286 3
Average 19.75 132064 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $439 million in CDLX’s case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand Avanos Medical, Inc. (NYSE:AVNS) is the least popular one with only 8 bullish hedge fund positions. Cardlytics, Inc. (NASDAQ:CDLX) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately CDLX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CDLX were disappointed as the stock returned -40.3% 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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