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Did Hedge Funds Drop The Ball On Fitbit Inc (FIT) ?

Reymerlyn Martin

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Fitbit Inc (NYSE:FIT) and see how it was affected.

Is Fitbit Inc (NYSE:FIT) a good investment right now? The best stock pickers are getting less bullish. The number of bullish hedge fund positions went down by 4 in recent months. Our calculations also showed that FIT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are tons of methods investors have at their disposal to value publicly traded companies. Some of the less known methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top investment managers can beat the S&P 500 by a healthy margin (see the details here).

[caption id="attachment_26088" align="aligncenter" width="600"] Chase Coleman of Tiger Global[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to view the fresh hedge fund action encompassing Fitbit Inc (NYSE:FIT).

What does smart money think about Fitbit Inc (NYSE:FIT)?

Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FIT over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Fitbit Inc (NYSE:FIT), which was worth $22.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $21.9 million worth of shares. Coatue Management, D E Shaw, and Tiger Global 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 Coatue Management allocated the biggest weight to Fitbit Inc (NYSE:FIT), around 0.11% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to FIT.

Since Fitbit Inc (NYSE:FIT) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers that slashed their full holdings heading into Q4. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $1.1 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund said goodbye to about $1.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks similar to Fitbit Inc (NYSE:FIT). These stocks are Sapiens International Corporation N.V. (NASDAQ:SPNS), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), Griffon Corporation (NYSE:GFF), and Abercrombie & Fitch Co. (NYSE:ANF). This group of stocks' market valuations are closest to FIT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPNS,8,28907,0 DRNA,20,247941,4 GFF,13,131406,4 ANF,19,64845,-7 Average,15,118275,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $69 million in FIT's case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 8 bullish hedge fund positions. Fitbit Inc (NYSE:FIT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FIT as the stock returned 82.7% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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