Is Root, Inc. (ROOT) A Good Stock To Buy?
We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Root, Inc. (NASDAQ:ROOT) based on that data.
Is ROOT a good stock to buy? The best stock pickers were taking a bearish view. The number of bullish hedge fund bets decreased by 7 in recent months. Root, Inc. (NASDAQ:ROOT) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that ROOT isn't among the 30 most popular stocks among hedge funds (click for Q1 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 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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Do Hedge Funds Think ROOT Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in ROOT over the last 23 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Silver Lake Partners held the most valuable stake in Root, Inc. (NASDAQ:ROOT), which was worth $117.9 million at the end of the fourth quarter. On the second spot was Coatue Management which amassed $57.9 million worth of shares. Tiger Global Management LLC, Valiant Capital, and Hillhouse Capital Management 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 Centerbridge Partners allocated the biggest weight to Root, Inc. (NASDAQ:ROOT), around 2.28% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, designating 1.99 percent of its 13F equity portfolio to ROOT.
Seeing as Root, Inc. (NASDAQ:ROOT) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that slashed their positions entirely by the end of the first quarter. It's worth mentioning that Alex Sacerdote's Whale Rock Capital Management sold off the largest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $29.1 million in stock. Michael Rockefeller and KarláKroeker's fund, Woodline Partners, also sold off its stock, about $21.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds by the end of the first quarter.
Let's go over hedge fund activity in other stocks similar to Root, Inc. (NASDAQ:ROOT). We will take a look at Insperity Inc (NYSE:NSP), Colony Capital Inc (NYSE:CLNY), Pebblebrook Hotel Trust (NYSE:PEB), Option Care Health, Inc. (NASDAQ:OPCH), Walker & Dunlop Inc. (NYSE:WD), FibroGen Inc (NASDAQ:FGEN), and Bandwidth Inc. (NASDAQ:BAND). This group of stocks' market values match ROOT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSP,20,226976,-5 CLNY,25,592790,4 PEB,10,48298,-6 OPCH,31,373980,7 WD,19,110380,0 FGEN,18,246707,-3 BAND,24,267634,-7 Average,21,266681,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $347 million in ROOT's case. Option Care Health, Inc. (NASDAQ:OPCH) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 10 bullish hedge fund positions. Root, Inc. (NASDAQ:ROOT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ROOT is 38.6. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately ROOT wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ROOT investors were disappointed as the stock returned -39.8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
