The three most popular hedge fund stocks to avoid have more going for them than people seem to believe.
Hedge funds hold considerable sway over financial markets. At the end of 2022, the world’s 15,000 hedge funds collectively managed about $4.5 trillion in assets for clients.
In the North America, there are now more than 650 hedge funds that each control $1 billion or more of investable assets. That’s a lot of money to invest in the stock market.
However, just because hedge fund managers have a lot of money to invest, doesn’t mean that they make smart decisions or beat the market. In fact, hedge funds had one of their worst years ever in 2022 as equity markets around the world tanked.
Stock-focused hedge funds lost an average of 10.37% last year, according to the HFRI 500 Fund Weighted Composite Index, which tracks many of the biggest global hedge funds. So, should individual investors follow the lead of hedge funds? Not necessarily.
It often pays if you don’t follow the herd. Here are three popular hedge fund stocks to avoid.
| PYPL | PayPal | $73.98 |
| YELP | Yelp | $30.89 |
| INTC | Intel | $32.58 |
PayPal Holdings (PYPL)
Ken Griffin’s Citadel hedge fund earned $16 billion in 2022, making it the top-earning fund in history.
Among the stocks Citadel bought most toward the end of last year was financial technology (fintech) giant PayPal (NASDAQ:PYPL), making it one of the most popular hedge fund stocks to avoid.
In the second half of 2022, Citadel more than quintupled its stake in PYPL stock, buying 5.43 million shares. It must be a long-term play as PayPal stock had done virtually nothing since Citadel exponentially grew its position in the payments company.
In the last six months, PYPL stock has slumped 10%. It is flat year-to-date (up 0.07%). This continues a dreadful trend for PayPal stock, which is down 3% in the past five years.
Holding PayPal back has been slowing growth and rising competition in the fintech space. The company’s most recent earnings topped analysts’ consensus estimates.
However, the company issued lukewarm earnings per share guidance for this year and declined to provide any revenue guidance, leaving investors feeling underwhelmed. PayPal also announced that CEO Dan Schulman is retiring at the end of 2023.
Given the lackluster performance of PYPL stock, it might be best for investors to not follow Ken Griffin’s lead on this investment.
Yelp (YELP)
Another stock that is heavily owned by hedge funds is Yelp (NYSE:YELP), the mobile app that publishes crowd-sourced reviews about restaurants, hotels, retailers and other businesses.
This is surprising given the scant attention Yelp gets in the business press these days, and the stock’s unimpressive performance. In the last 12 months, YELP stock has declined nearly 10% and it is down 30% over the past five years.
The company’s share price hit an all-time high in March 2014 and has been on a steady decline since then.
At the end of last year, analysts at JPMorgan Chase (NYSE:JPM) downgraded YELP stock to “underweight” from “neutral,” citing concerns about the company’s advertising business.
The online ad industry has suffered a severe slump coming out of the pandemic, with inflation and interest rates rising. To be fair, the company did issue Q4 2022 numbers that beat Wall Street expectations, giving the stock a bump higher.
However, near-term advertising trends don’t look positive and the long-term outlook for Yelp remains a question mark.
Intel (INTC)
Many well respected hedge fund managers have been adding to their positions in semiconductor and microchip company Intel (NASDAQ:INTC).
This includes Joel Greenblatt of Gotham Asset Management and Mario Gabelli of Gamco Investors. This is pretty surprising given that Intel has been a slow moving train wreck among technology stocks.
Over the last five years, INTC stock has declined 37%. The performance has been so bad that some analysts now refer to Intel’s shares as a “value trap.”
The litany of problems at Intel is long and varied. At the end of January, Intel reported a Q4 2022 net loss of $664 million compared to a profit of $4.62 billion a year earlier.
The company blamed the poor results on declining sales of personal computers coming out of the Covid-19 pandemic. However, Intel forecast more pain ahead, saying it expects a net loss of 15 cents a share for this year’s first quarter.
The company declined to provide full-year guidance, citing uncertainty. INTC stock fell 10% immediately after the Q4 print.
Intel has announced layoffs and several cost cutting initiatives, including to executive pay. But it appears to be too little, too late as Intel continues to lose market share to semiconductor and chip rivals such as Advanced Micro Devices (NASDAQ:AMD).
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
