How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Booking Holdings Inc. (NASDAQ:BKNG) and determine whether hedge funds had an edge regarding this stock.
Booking Holdings Inc. (NASDAQ:BKNG) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that BKNG ranked #24 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.
Paul Reeder of PAR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to go over the recent hedge fund action surrounding Booking Holdings Inc. (NASDAQ:BKNG).
Hedge fund activity in Booking Holdings Inc. (NASDAQ:BKNG)
At the end of June, a total of 96 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 72 hedge funds with a bullish position in BKNG 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.
When looking at the institutional investors followed by Insider Monkey, Lone Pine Capital, holds the number one position in Booking Holdings Inc. (NASDAQ:BKNG). Lone Pine Capital has a $949.2 million position in the stock, comprising 4.8% of its 13F portfolio. Coming in second is Melvin Capital Management, managed by Gabriel Plotkin, which holds a $714.5 million position; 4.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of Paul Reeder and Edward Shapiro’s PAR Capital Management, and Gabriel Plotkin’s Melvin Capital Management. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Booking Holdings Inc. (NASDAQ:BKNG), around 19.34% of its 13F portfolio. RIT Capital Partners is also relatively very bullish on the stock, setting aside 10.98 percent of its 13F equity portfolio to BKNG.
As aggregate interest increased, some big names were breaking ground themselves. Lone Pine Capital, assembled the biggest position in Booking Holdings Inc. (NASDAQ:BKNG). Lone Pine Capital had $949.2 million invested in the company at the end of the quarter. Patrick Degorce’s Theleme Partners also initiated a $133.8 million position during the quarter. The following funds were also among the new BKNG investors: Daniel S. Och’s OZ Management, Stanley Druckenmiller’s Duquesne Capital, and Robert Boucai’s Newbrook Capital Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Booking Holdings Inc. (NASDAQ:BKNG) but similarly valued. These stocks are Zoetis Inc (NYSE:ZTS), VMware, Inc. (NYSE:VMW), Automatic Data Processing, Inc. (NASDAQ:ADP), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Canadian National Railway Company (NYSE:CNI), Colgate-Palmolive Company (NYSE:CL), and China Petroleum & Chemical Corp (NYSE:SNP). All of these stocks’ market caps are closest to BKNG’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZTS,58,1985007,-2 VMW,42,696435,15 ADP,49,1802478,3 REGN,49,1604372,7 CNI,28,2050472,2 CL,50,1699344,-3 SNP,10,168521,1 Average,40.9,1429518,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1430 million. That figure was $6099 million in BKNG’s case. Zoetis Inc (NYSE:ZTS) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Booking Holdings Inc. (NASDAQ:BKNG) is more popular among hedge funds. Our overall hedge fund sentiment score for BKNG is 89.4. 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 returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on BKNG as the stock returned 15.2% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.