Were Hedge Funds Right About Piling Into Travelzoo (TZOO)?
Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Travelzoo (NASDAQ:TZOO) based on that data and determine whether they were really smart about the stock.
Is Travelzoo (NASDAQ:TZOO) a worthy stock to buy now? Prominent investors were getting more bullish. The number of long hedge fund positions rose by 3 lately. Our calculations also showed that TZOO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). TZOO was in 11 hedge funds' portfolios at the end of the first quarter of 2020. There were 8 hedge funds in our database with TZOO positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="400"]
Matthew Hulsizer of PEAK6 Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the recent hedge fund action surrounding Travelzoo (NASDAQ:TZOO).
What does smart money think about Travelzoo (NASDAQ:TZOO)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TZOO over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Travelzoo (NASDAQ:TZOO), with a stake worth $2.4 million reported as of the end of September. Trailing Renaissance Technologies was Osmium Partners, which amassed a stake valued at $1.9 million. PEAK6 Capital Management, Arrowstreet Capital, and Millennium 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 Osmium Partners allocated the biggest weight to Travelzoo (NASDAQ:TZOO), around 6% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to TZOO.
Now, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the most outsized position in Travelzoo (NASDAQ:TZOO). Millennium Management had $0.2 million invested in the company at the end of the quarter. Ali Motamed's Invenomic Capital Management also made a $0.1 million investment in the stock during the quarter. The following funds were also among the new TZOO investors: Greg Eisner's Engineers Gate Manager and Chuck Royce's Royce & Associates.
Let's check out hedge fund activity in other stocks similar to Travelzoo (NASDAQ:TZOO). These stocks are Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA), KBL Merger Corp. IV (NASDAQ:KBLM), Aviat Networks Inc (NASDAQ:AVNW), and Ring Energy Inc (NYSE:REI). This group of stocks' market values are closest to TZOO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IEA,6,2546,0 KBLM,4,368,0 AVNW,5,9875,0 REI,6,596,-4 Average,5.25,3346,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $6 million in TZOO's case. Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA) is the most popular stock in this table. On the other hand KBL Merger Corp. IV (NASDAQ:KBLM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Travelzoo (NASDAQ:TZOO) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TZOO as the stock returned 43.5% in Q2 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.
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