Were Hedge Funds Right About Dumping CDK Global Inc (CDK)?
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 CDK Global Inc (NASDAQ:CDK).
CDK Global Inc (NASDAQ:CDK) investors should pay attention to a decrease in enthusiasm from smart money lately. CDK Global Inc (NASDAQ:CDK) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 45. Our calculations also showed that CDK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Thomas Bancroft of Makaira Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we're going to analyze the fresh hedge fund action encompassing CDK Global Inc (NASDAQ:CDK).
Do Hedge Funds Think CDK Is A Good Stock To Buy Now?
At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in CDK 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 CDK Global Inc (NASDAQ:CDK) was held by P2 Capital Partners, which reported holding $90.1 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $45 million position. Other investors bullish on the company included Arrowstreet Capital, Makaira Partners, and D E Shaw. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to CDK Global Inc (NASDAQ:CDK), around 8.05% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, dishing out 5.98 percent of its 13F equity portfolio to CDK.
Due to the fact that CDK Global Inc (NASDAQ:CDK) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedge funds that elected to cut their full holdings in the first quarter. It's worth mentioning that Amit Nitin Doshi's Harbor Spring Capital dumped the largest position of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $30.8 million in stock, and Charles de Vaulx's International Value Advisers was right behind this move, as the fund said goodbye to about $21.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 9 funds in the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as CDK Global Inc (NASDAQ:CDK) but similarly valued. These stocks are Skechers USA Inc (NYSE:SKX), Plains All American Pipeline, L.P. (NYSE:PAA), Vir Biotechnology, Inc. (NASDAQ:VIR), SLM Corp (NASDAQ:SLM), Envista Holdings Corporation (NYSE:NVST), Woori Financial Group Inc. (NYSE:WF), and MicroStrategy Incorporated (NASDAQ:MSTR). This group of stocks' market caps are similar to CDK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKX,29,531729,-2 PAA,7,57037,-3 VIR,9,17685,4 SLM,27,996426,8 NVST,34,889306,1 WF,2,3273,1 MSTR,20,132184,5 Average,18.3,375377,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $375 million. That figure was $298 million in CDK's case. Envista Holdings Corporation (NYSE:NVST) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 2 bullish hedge fund positions. CDK Global Inc (NASDAQ:CDK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CDK is 33. 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 CDK wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CDK investors were disappointed as the stock returned -10.5% 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.
