Is CDLX Stock A Buy or Sell?
Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Cardlytics, Inc. (NASDAQ:CDLX).
Is CDLX stock a buy? The best stock pickers were getting more optimistic. The number of bullish hedge fund positions increased by 3 in recent months. Cardlytics, Inc. (NASDAQ:CDLX) was in 32 hedge funds' portfolios at the end of December. The all time high for this statistic is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CDLX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 29 hedge funds in our database with CDLX positions at the end of the third quarter.
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 124 percentage points since March 2017 (see the details here).
Glen Kacher of Light Street Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to view the latest hedge fund action regarding Cardlytics, Inc. (NASDAQ:CDLX).
Do Hedge Funds Think CDLX Is A Good Stock To Buy Now?
At the end of December, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in CDLX a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, CAS Investment Partners held the most valuable stake in Cardlytics, Inc. (NASDAQ:CDLX), which was worth $640.9 million at the end of the fourth quarter. On the second spot was Alua Capital Management which amassed $131.4 million worth of shares. 683 Capital Partners, Antipodean Advisors, 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 35.51% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, earmarking 26.3 percent of its 13F equity portfolio to CDLX.
Consequently, key hedge funds have been driving this bullishness. Alua Capital Management, managed by Tom Purcell and Marco Tablada, created the largest position in Cardlytics, Inc. (NASDAQ:CDLX). Alua Capital Management had $131.4 million invested in the company at the end of the quarter. Glen Kacher's Light Street Capital also initiated a $63.8 million position during the quarter. The other funds with brand new CDLX positions are Principal Global Investors's Columbus Circle Investors, Kevin Mok's Hidden Lake Asset Management, and John Orrico's Water Island Capital.
Let's go over hedge fund activity in other stocks similar to Cardlytics, Inc. (NASDAQ:CDLX). We will take a look at Companhia Paranaense de Energia (NYSE:ELP), Covetrus, Inc. (NASDAQ:CVET), Desktop Metal, Inc. (NYSE:DM), Radian Group Inc (NYSE:RDN), National General Holdings Corp (NASDAQ:NGHC), Olin Corporation (NYSE:OLN), and Perspecta Inc. (NYSE:PRSP). This group of stocks' market caps are closest to CDLX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ELP,9,20801,3 CVET,19,184581,-5 DM,24,320040,24 RDN,37,450463,-1 NGHC,23,444211,-2 OLN,23,742730,-10 PRSP,37,935354,1 Average,24.6,442597,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $443 million. That figure was $1332 million in CDLX's case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia (NYSE:ELP) is the least popular one with only 9 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. Our overall hedge fund sentiment score for CDLX is 79.1. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately CDLX wasn't nearly as popular as these 30 stocks and hedge funds that were betting on CDLX were disappointed as the stock returned -21.3% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
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