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Did Hedge Funds Make The Right Call On Momo Inc (MOMO) ?

Debasis Saha

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 Momo Inc (NASDAQ:MOMO) based on that data and determine whether they were really smart about the stock.

Momo Inc (NASDAQ:MOMO) was in 25 hedge funds' portfolios at the end of the first quarter of 2020. MOMO has seen a decrease in enthusiasm from smart money in recent months. There were 38 hedge funds in our database with MOMO positions at the end of the previous quarter. Our calculations also showed that MOMO 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital
Mark Kingdon - Kingdon Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like "the Starbucks of cannabis" to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we're going to take a gander at the latest hedge fund action encompassing Momo Inc (NASDAQ:MOMO).

What does smart money think about Momo Inc (NASDAQ:MOMO)?

At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -34% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MOMO over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is MOMO A Good Stock To Buy?
Is MOMO A Good Stock To Buy?

The largest stake in Momo Inc (NASDAQ:MOMO) was held by Renaissance Technologies, which reported holding $289.4 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $82.1 million position. Other investors bullish on the company included Arrowstreet Capital, Yiheng Capital, and Kylin Management. In terms of the portfolio weights assigned to each position Kylin Management allocated the biggest weight to Momo Inc (NASDAQ:MOMO), around 8.21% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, earmarking 7.78 percent of its 13F equity portfolio to MOMO.

Due to the fact that Momo Inc (NASDAQ:MOMO) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds who sold off their entire stakes by the end of the first quarter. It's worth mentioning that Noam Gottesman's GLG Partners cut the biggest position of all the hedgies followed by Insider Monkey, worth about $25.4 million in stock. Fang Zheng's fund, Keywise Capital Management, also said goodbye to its stock, about $24.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 13 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Momo Inc (NASDAQ:MOMO) but similarly valued. These stocks are Pilgrim's Pride Corporation (NASDAQ:PPC), Woori Financial Group Inc. (NYSE:WF), Quanta Services Inc (NYSE:PWR), and Etsy Inc (NASDAQ:ETSY). This group of stocks' market caps match MOMO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPC,18,122135,-6 WF,3,2382,0 PWR,28,1509183,-16 ETSY,38,712742,-8 Average,21.75,586611,-7.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $587 million. That figure was $585 million in MOMO's case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 3 bullish hedge fund positions. Momo Inc (NASDAQ:MOMO) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately MOMO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MOMO were disappointed as the stock returned -16.5% during the same time period 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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