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Hedge Fund Hotels in 2020: Alibaba (BABA) vs. Walmart Inc. (WMT)

Insider Monkey Staff

Hedge funds started to disclose their holdings at the end of 2019 in new 13F filings. They have 45 days from the end of each quarter to disclose their positions in publicly traded US stocks, options, and convertible debt. Insider Monkey tracks more than 750 hedge funds and usually more than half of these hedge funds will wait until the last day to file their 13Fs with the SEC. Fortunately, our experience shows that aggregate hedge fund sentiment towards most stocks don't change much. In this article we are going to take a look at how hedge funds have been feeling about a stock like Alibaba Group Holding Limited (NYSE:BABA) and compare its performance against other similarly valued stocks like Walmart Inc. (NYSE:WMT).

Is Alibaba Group Holding Limited (NYSE:BABA) a buy right now? Hedge funds are taking an optimistic view. The number of bullish hedge fund bets went up by 22 in recent months. Our calculations also showed that BABA consistently ranked near the top of our quarterly rankings of the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). BABA was in 149 hedge funds' portfolios at the end of the third quarter of 2019. There were 127 hedge funds in our database with BABA positions at the end of the second quarter. On the other hand Walmart Inc. wasn't able to break into the list of top 30 hedge fund stocks in 2019.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that historically hedge funds' stock picks outperformed the market by a large margin. That's why hedge fund industry became a $3 trillion industry. However,  you can't outperform the market by replicating the entire portfolio of an average hedge fund anymore. Luckily Insider Monkey came up with proprietary algorithms to identify the best stock picks of the best hedge fund managers. We have been sharing a portfolio of around 15 hand picked stocks in our monthly newsletter since March 2017 and generated a cumulative return of 87% vs. 47.7% S&P 500 ETFs during the same period (see the details here).

We leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap trading at an enterprise value/operating profit ratio of 1 (this isn't a typo). In January, we recommended a position in a dividend stock with a PE ratio of less than 7 that is growing its earnings and yields 11%. Now let's view the fresh hedge fund action encompassing Alibaba Group Holding Limited (NYSE:BABA).

Jack Ma, Chairman of Alibaba Group Holding Ltd

How are hedge funds trading Alibaba Group Holding Limited (NYSE:BABA)?

Heading into the fourth quarter of 2019, a total of 149 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 127 hedge funds with a bullish position in BABA a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Alibaba Group Holding Limited (NYSE:BABA), which was worth $2251.9 million at the end of the third quarter. On the second spot was Tiger Global Management which amassed $1301.1 million worth of shares. Lone Pine Capital, D E Shaw, and Egerton Capital Limited 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 Serenity Capital allocated the biggest weight to Alibaba Group Holding Limited (NYSE:BABA), around 38.96% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, setting aside 26.85 percent of its 13F equity portfolio to BABA.

As industrywide interest jumped, some big names were leading the bulls' herd. Sculptor Capital established the most valuable call position in Alibaba Group Holding Limited (NYSE:BABA). Sculptor Capital had $285.9 million invested in the company at the end of the quarter. David Tepper's Appaloosa Management also made a $217.4 million investment in the stock during the quarter. The other funds with brand new BABA positions are Matt Sirovich and Jeremy Mindich's Scopia Capital, Jacob Doft's Highline Capital Management, and Jeffrey Altman's Owl Creek Asset Management.

Let's check out hedge fund activity in other stocks similar to Alibaba Group Holding Limited (NYSE:BABA). We will take a look at Visa Inc (NYSE:V), JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT). This group of stocks' market caps are closest to BABA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position V,132,15686359,15 JPM,84,11167465,-6 JNJ,76,7326703,13 WMT,56,5584105,0 Average,87,9941158,5.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 87 hedge funds with bullish positions and the average amount invested in these stocks was $9941 million. That figure was $19197 million in BABA's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 56 bullish hedge fund positions. Compared to these stocks Alibaba Group Holding Limited (NYSE:BABA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These top 20 hedge fund stocks also returned 4.5% so far in 2020 and beat the market by an additional 3 percentage points. Unfortunately BABA wasn't nearly as successful as these 20 stocks and hedge funds that were betting on BABA were disappointed as the stock was flat in 2020 and slightly trailed the market due to the coronavirus related concerns. BABA's performance in 2020 was still better than Walmart's which underperformed the market by more than 4 percentage points. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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