Was The Smart Money Right About Crowding Into CoStar Group Inc (CSGP)?

Abigail Fisher
·6 min read

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 CoStar Group Inc (NASDAQ:CSGP).

Is CoStar Group Inc (NASDAQ:CSGP) worth your attention right now? The smart money was becoming more confident. The number of long hedge fund positions rose by 10 lately. CoStar Group Inc (NASDAQ:CSGP) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CSGP isn't 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). There were 40 hedge funds in our database with CSGP positions at the end of the first 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 56 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.

Aaron Cowen Suvretta Capital
Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's check out the fresh hedge fund action encompassing CoStar Group Inc (NASDAQ:CSGP).

What does smart money think about CoStar Group Inc (NASDAQ:CSGP)?

At second quarter's end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in CSGP a year ago. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Akre Capital Management was the largest shareholder of CoStar Group Inc (NASDAQ:CSGP), with a stake worth $678.9 million reported as of the end of September. Trailing Akre Capital Management was Select Equity Group, which amassed a stake valued at $291.4 million. Bares Capital Management, Melvin Capital Management, and Zevenbergen Capital Investments 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 Wildcat Capital Management allocated the biggest weight to CoStar Group Inc (NASDAQ:CSGP), around 21.02% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, dishing out 6.52 percent of its 13F equity portfolio to CSGP.

Consequently, specific money managers have been driving this bullishness. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, assembled the most valuable position in CoStar Group Inc (NASDAQ:CSGP). Alkeon Capital Management had $68.7 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also initiated a $32.6 million position during the quarter. The following funds were also among the new CSGP investors: Adam Parker's Center Lake Capital, Baker Burleson and Stormy Scott's Banbury Partners, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's now review hedge fund activity in other stocks similar to CoStar Group Inc (NASDAQ:CSGP). These stocks are MSCI Inc (NYSE:MSCI), Marriott International Inc (NASDAQ:MAR), ResMed Inc. (NYSE:RMD), SYSCO Corporation (NYSE:SYY), Cintas Corporation (NASDAQ:CTAS), WEC Energy Group, Inc. (NYSE:WEC), and The Clorox Company (NYSE:CLX). All of these stocks' market caps are closest to CSGP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSCI,44,729558,15 MAR,48,2159338,1 RMD,25,224162,-8 SYY,42,2177488,7 CTAS,34,531899,-8 WEC,30,290696,1 CLX,36,1488687,-5 Average,37,1085975,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1086 million. That figure was $2267 million in CSGP's case. Marriott International Inc (NASDAQ:MAR) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks CoStar Group Inc (NASDAQ:CSGP) is more popular among hedge funds. Our overall hedge fund sentiment score for CSGP is 90. 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 gained 30% in 2020 through October 23rd and still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on CSGP, though not to the same extent, as the stock returned 15.4% since the end of June (through October 23rd) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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