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GameStop (GME) Casualty Melvin Capital’s Top 10 Stock Holdings

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Siraj Sarwar
·9 min read
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In this article, we discussed Melvin Capital Management’s short bets that resulted in big losses along with its top 10 stock holdings. Click to skip ahead and see Melvin Capital's Top 5 Stock Holdings.

Gabriel Plotkin’s hedge fund Melvin Capital Management’s short-bets against GameStop (NYSE: GME) and a few other stocks went the wrong way and resulted in hefty losses. Melvin Capital, which started the year with $12.5 billion of assets under management, is down 30% year to date according to media reports. The 42-year-old Gabriel Plotkin, however, received an emergency cash injection of $2.75 billion from Steve Cohen's Point 72, Ken Griffin's Citadel, and other partners in the battle against Reddit's WallStreetBets crew.

“I am incredibly proud to partner with Ken Griffin and Steve Cohen,” Plotkin said. “The team at Melvin is eager to get to work and reward the confidence of these two great investment icons.”

CNBC on Wednesday reported that Melvin Capital closed out of GameStop's short position and Melvin manager Gabe Plotkin stated that speculations about a bankruptcy filing are false.

The day trader’s army on Reddit has been calling to buy and avoid selling in order to boost GameStop stock price. Fortunately, they have been successful as shares of GameStop rallied 685% this year to around $147 at the end of Tuesday trading. Other short sellers have also been in trouble as GME shares extend the upside trend. GameStop short-sellers have lost $5 billion in 2021, according to data from the financial-analytics firm S3 Partners.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

Billionaire investor Chamath Palihapitiya also jumped into the rally and started following WallStreetBets forum's move of buying GME stock. He tweeted "Lot's of $GME talk soooooo.... We bought Feb $115 calls on $GME this morning. Let's gooooooo!!!!!!!!."

Tesla founder Elon Musk also entered into the GameStop phenomena on Tuesday with a one-word tweet “Gamestonk” and reports indicate that Musk tweet pumped in $4 billion into the GameStop stock. Share of videogame retailer rallied 92% on Tuesday and added another 50% in the post-market trading.

A former star portfolio manager for Steven A. Cohen, Gabriel Plotkin has also been facing stiff competition on his other short bets from Reddit's day traders.

The fight started two months ago after a Reddit user posted a video with the title “GME Squeeze and the Demise of Melvin Capital”. That post went viral among Reddit users and even they have started mentioning other stocks that Melvin Capital is shorting. Melvin Capital has placed dozen of other short bets and reports show that many of those stocks are also soaring.

Bed Bath and Beyond (NYSE: BBBY) is among those short bets of Gabriel Plotkin’s hedge fund and it is soaring at a massive pace. Shares of BBBY are up 107% since the beginning of this year, thanks to Reddit users buying strategy. Several other stocks have also seen surprisingly high volume and stock price surge in the past few days.

Besides the latest losses, Melvin Capital Management has a strong track record of generating big returns for investors. The firm's short or long bets paid off as its average returns stand around 30% since its inception in 2014.

While Gabriel Plotkin’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 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 significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let's start our countdown on Melvin Capital Management’s top ten stock holdings to determine how its stock holdings are performing in a fight against Reddit users.

10. AutoZone, Inc. (NYSE: AZO)

Shares of AutoZone (NYSE: AZO) underperformed in the last twelve months due to coronavirus spread and social distancing policies. The hedge fund has slashed its 52% stake in Autozone during the September quarter. Despite that, the automotive retailer is the tenth largest stock holding of Melvin Capital, accounting for 2.42% of the overall portfolio.

Meanwhile, AutoZone's board of directors believes that shares are undervalued and authorized to repurchase an additional $1.5 billion of common stock after repurchasing more than $650 million of common stock in the September quarter. The company has also been reporting strong financial numbers despite pandemic related pressure. Its September quarter revenue of $3.15 billion grew 12.9% from the year-ago period while operating profit increased 35% year over year.

9. Pinterest, Inc (NYSE: PINS)

Gabriel Plotkin is bullish on Pinterest, Inc (NYSE: PINS) as Melvin Capital has raised its position in Pinterest by 173% in the third quarter after initiating a big position in the second quarter. It is the ninth-largest stock holding of Melvin Capital, accounting for 2.48% of the 13F portfolio. Fortunately, Gabriel Plotkin's strategy worked for his hedge fund because the share price of Pinterest rallied more than 200% in the last twelve months.

Argosy Investors, which returned 29.8% in select accounts in 2020, stated in the investor's letter that the firm has capitalized on the strong share price rally of Pinterest. Here is what Argosy Investors stated:

“With that in mind, we trimmed Pinterest (PINS) multiple times during the fourth quarter as the price increased over 200% from our initial purchase price in November 2019. This was a starter position for us at the time, and this is one of those stocks that investors kept buying because of Pinterest’s perceived benefit from stay-at-home orders. We agree that the lockdowns likely forced people globally to try things they wouldn’t have normally. As the CEO of Post Holdings (POST), Rob Vitale, said on a recent conference call about customers trying cereal while stuck at home, “that level of trial would have been extremely expensive and challenging to obtain”. Similarly, we believe people tried and liked Pinterest at a rate that would be extremely expensive for them to acquire through advertising.”

8. Amazon.com (NASDAQ: AMZN)

Melvin Capital has taken advantage of its Amazon.com (NASDAQ: AMZN) position. The hedge fund has reduced its 45% stake in the world’s largest e-commerce platform in the third quarter to capitalize on the stunning share price rally. Amazon's stock price surged close to 80% in the last twelve months on the back of social distancing policies.

Other hedge funds are also bullish on Amazon. L1 Capital International Fund, which returned 5.1% for the quarter, highlighted the growth prospects of Amazon in an investor’s letter. Here is what L1 Capital stated:

“Several investments in the technology sector were trimmed on valuation grounds with the proceeds used to increase our investment in Amazon. Amazon’s successful flywheel business model and Amazon Web Services are well known. However, we believe the current share price under‑appreciates:

– The consistency and longevity of Amazon’s growth potential in its key businesses;

– The importance of additional revenue streams such as advertising which are high margin and growing rapidly; and

– The strengthening barriers to competition and competitive advantages arising from Amazon’s stepped‑up investment in logistics and other infrastructure.”

7. Advance Auto Parts Inc (NYSE: AAP)

Automotive retailer Advance Auto Parts Inc (NYSE: AAP) is the ninth-largest stock holding of Melvin Capital, accounting for 2.84% of the overall portfolio. Shares of Advance Auto Parts underperformed in the last twelve months compared to the broader market index. Slower revenue growth due to virus spread and lockdowns negatively impacted Advanced Auto Parts' performance in the past couple of quarters.

Diamond Hill Capital stated in an investor's letter that Advanced Auto Parts is set to improve its market share and margins. Here is what Diamond Hill Capital stated:

“Advance Auto Parts, Inc. is a leader in the automotive aftermarket parts retail market where the top companies produce some of the best margins in all of retail. Following a complex acquisition in 2014, Advance underperformed and lost market share under the leadership of a previous management team. The company is executing well on a plan to gain market share and materially improve margins.”

6. ServiceNow, Inc. (NYSE: NOW)

Melvin Capital Management has been holding a stake in ServiceNow, Inc. (NYSE: NOW) since 2017 and the firm has raised its stake by 63% in the September quarter. The hedge fund has benefited from its ServiceNow position because shares of cloud computing company rallied 72% in the last twelve months, extending the five years gains to 580%.

The revenue growth is supported by robust financial performance. The company has generated 26% year-over-year revenue growth in the September quarter while it has also raised its subscription revenue and billings guidance for the full year.

"In a challenging pandemic environment, Q3 was a fantastic quarter for ServiceNow. We exceeded the high end of our subscription revenues and subscription billings guidance, underscoring the power of our product portfolio and our ability to meet the evolving needs of our customers. Overall, we see strong momentum heading into the last quarter of the year and our robust pipeline gives me confidence in our ability to continue executing well into 2021. I’m very excited about the traction we are seeing in our journey towards becoming a $10 billion revenue company and the defining enterprise software company of the 21st century," says ServiceNow CFO Gina Mastantuono.

Click to continue reading and see Melvin Capital's Top 5 Stock Picks.

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Disclosure: No Position. The article Melvin Capital's Top 10 Stock Holdings is originally published on Insider Monkey.