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Electronic Arts Inc. (EA) Fell Out Of Favor With Hedge Funds

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Is Electronic Arts Inc. (NASDAQ:EA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Electronic Arts Inc. (NASDAQ:EA) was in 53 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 79. EA has seen a decrease in enthusiasm from smart money in recent months. There were 56 hedge funds in our database with EA positions at the end of the second quarter. Our calculations also showed that EA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a glance at the fresh hedge fund action encompassing Electronic Arts Inc. (NASDAQ:EA).

SAC CAPITAL ADVISORS
SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

Do Hedge Funds Think EA Is A Good Stock To Buy Now?

At third quarter's end, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EA over the last 25 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Electronic Arts Inc. (NASDAQ:EA) was held by Citadel Investment Group, which reported holding $175.3 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $148.5 million position. Other investors bullish on the company included Scopus Asset Management, Atreides Management, and D E Shaw. In terms of the portfolio weights assigned to each position Force Hill Capital Management allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 3.68% of its 13F portfolio. Adam Capital is also relatively very bullish on the stock, dishing out 2.9 percent of its 13F equity portfolio to EA.

Since Electronic Arts Inc. (NASDAQ:EA) has witnessed bearish sentiment from the smart money, logic holds that there were a few hedge funds that elected to cut their entire stakes in the third quarter. It's worth mentioning that Gil Simon's SoMa Equity Partners dropped the largest stake of all the hedgies followed by Insider Monkey, totaling about $71.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $39.1 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Electronic Arts Inc. (NASDAQ:EA) but similarly valued. We will take a look at Constellation Brands, Inc. (NYSE:STZ), Sempra (NYSE:SRE), Aptiv PLC (NYSE:APTV), Baxter International Inc. (NYSE:BAX), SYSCO Corporation (NYSE:SYY), STMicroelectronics N.V. (NYSE:STM), and Cintas Corporation (NASDAQ:CTAS). This group of stocks' market valuations resemble EA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STZ,53,1719109,3 SRE,23,287269,-5 APTV,44,1757047,4 BAX,42,3485785,-4 SYY,29,2245599,-11 STM,11,49115,-2 CTAS,36,781970,15 Average,34,1475128,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1475 million. That figure was $1097 million in EA's case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 bullish hedge fund positions. Electronic Arts Inc. (NASDAQ:EA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EA is 72.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately EA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EA were disappointed as the stock returned -12.7% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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