money Were Hedge Funds Right About Piling Into Godaddy Inc (GDDY)?
In this article you are going to find out whether hedge funds think Godaddy Inc (NYSE:GDDY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Godaddy Inc (NYSE:GDDY) has experienced an increase in hedge fund interest in recent months. Godaddy Inc (NYSE:GDDY) was in 55 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 54. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 54 hedge funds in our database with GDDY holdings at the end of March. Our calculations also showed that GDDY isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to check out the new hedge fund action regarding Godaddy Inc (NYSE:GDDY).
Hedge fund activity in Godaddy Inc (NYSE:GDDY)
At the end of June, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in GDDY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Godaddy Inc (NYSE:GDDY) was held by Select Equity Group, which reported holding $675.4 million worth of stock at the end of September. It was followed by BlueSpruce Investments with a $323.4 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Newbrook Capital Advisors. In terms of the portfolio weights assigned to each position Brahman Capital allocated the biggest weight to Godaddy Inc (NYSE:GDDY), around 11.5% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, setting aside 9.7 percent of its 13F equity portfolio to GDDY.
Consequently, specific money managers have been driving this bullishness. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Godaddy Inc (NYSE:GDDY). Paloma Partners had $7.2 million invested in the company at the end of the quarter. Anthony S. Daffer's Provenire Capital also initiated a $6.5 million position during the quarter. The other funds with new positions in the stock are Joseph Samuels's Islet Management, Matthew Hulsizer's PEAK6 Capital Management, and Peter Muller's PDT Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Godaddy Inc (NYSE:GDDY) but similarly valued. These stocks are Cheniere Energy, Inc. (NYSE:LNG), Atmos Energy Corporation (NYSE:ATO), Fair Isaac Corporation (NYSE:FICO), GDS Holdings Limited (NASDAQ:GDS), Brookfield Infrastructure Partners L.P. (NYSE:BIP), The J.M. Smucker Company (NYSE:SJM), and W.P. Carey Inc. (NYSE:WPC). This group of stocks' market valuations are similar to GDDY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNG,38,2123554,-1 ATO,22,152893,1 FICO,36,1222830,-5 GDS,43,2239390,2 BIP,12,52792,-2 SJM,38,673873,2 WPC,23,93673,1 Average,30.3,937001,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $937 million. That figure was $2539 million in GDDY's case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Godaddy Inc (NYSE:GDDY) is more popular among hedge funds. Our overall hedge fund sentiment score for GDDY is 86. 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. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately GDDY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GDDY were disappointed as the stock returned 3.6% since the end of the second quarter (through 10/16) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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