Were Hedge Funds Right About Warming Up To eBay Inc (EBAY)?

Reymerlyn Martin
·6 min read

In this article we will check out the progression of hedge fund sentiment towards eBay Inc (NASDAQ:EBAY) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

eBay Inc (NASDAQ:EBAY) was in 58 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 83. EBAY shareholders have witnessed an increase in activity from the world's largest hedge funds recently. There were 52 hedge funds in our database with EBAY positions at the end of the first quarter. Our calculations also showed that EBAY 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). 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.

MOORE GLOBAL INVESTMENTS
MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

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. Keeping this in mind we're going to take a glance at the key hedge fund action regarding eBay Inc (NASDAQ:EBAY).

Hedge fund activity in eBay Inc (NASDAQ:EBAY)

At the end of the second quarter, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EBAY over the last 20 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in eBay Inc (NASDAQ:EBAY) was held by Baupost Group, which reported holding $1682.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $696.5 million position. Other investors bullish on the company included Elliott Investment Management, Ako Capital, and GLG Partners. In terms of the portfolio weights assigned to each position Baupost Group allocated the biggest weight to eBay Inc (NASDAQ:EBAY), around 21.01% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, earmarking 8.61 percent of its 13F equity portfolio to EBAY.

Now, some big names have jumped into eBay Inc (NASDAQ:EBAY) headfirst. Honeycomb Asset Management, managed by David Fiszel, assembled the biggest position in eBay Inc (NASDAQ:EBAY). Honeycomb Asset Management had $52.5 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also initiated a $48.4 million position during the quarter. The other funds with brand new EBAY positions are Anand Parekh's Alyeska Investment Group, Jeffrey Hoffner's Engle Capital, and Louis Bacon's Moore Global Investments.

Let's go over hedge fund activity in other stocks similar to eBay Inc (NASDAQ:EBAY). These stocks are Centene Corporation (NYSE:CNC), FedEx Corporation (NYSE:FDX), L3Harris Technologies, Inc. (NYSE:LHX), Monster Beverage Corp (NASDAQ:MNST), General Motors Company (NYSE:GM), Exelon Corporation (NASDAQ:EXC), and Veeva Systems Inc (NYSE:VEEV). This group of stocks' market valuations match EBAY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNC,71,3079774,5 FDX,46,1254577,-4 LHX,50,1312574,7 MNST,35,1880728,-8 GM,69,4380069,16 EXC,30,772535,-3 VEEV,35,529727,2 Average,48,1887141,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48 hedge funds with bullish positions and the average amount invested in these stocks was $1887 million. That figure was $5017 million in EBAY's case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Exelon Corporation (NASDAQ:EXC) is the least popular one with only 30 bullish hedge fund positions. eBay Inc (NASDAQ:EBAY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EBAY is 65.1. 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 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately EBAY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EBAY were disappointed as the stock returned 6.8% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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