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Hedge Funds Have Never Been This Bullish On Mastercard Incorporated (MA)

Reymerlyn Martin

Is Mastercard Incorporated (NYSE:MA) a good stock to buy now? The best stock pickers are becoming hopeful. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that MA is among the 30 most popular stocks among hedge funds, ranking 13th. MA was in 96 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 95 hedge funds in our database with MA positions at the end of the previous quarter. Hedge fund sentiment towards Mastercard is currently at its all time high.

This is usually a very bullish signal. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and outperformed the SPY by nearly 14 percentage points in 2.5 months. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Lone Pine Capital 2015 Q2 Investor Letter

We're going to review the key hedge fund action encompassing Mastercard Incorporated (NYSE:MA).

How are hedge funds trading Mastercard Incorporated (NYSE:MA)?

At Q4's end, a total of 96 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MA over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MA_mar2019

More specifically, Gardner Russo & Gardner was the largest shareholder of Mastercard Incorporated (NYSE:MA), with a stake worth $1523.9 million reported as of the end of September. Trailing Gardner Russo & Gardner was Akre Capital Management, which amassed a stake valued at $1004.9 million. Berkshire Hathaway, Arrowstreet Capital, and Lone Pine Capital were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Lone Pine Capital, managed by Stephen Mandel, established the largest position in Mastercard Incorporated (NYSE:MA). Lone Pine Capital had $555.5 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also made a $119.1 million investment in the stock during the quarter. The following funds were also among the new MA investors: Brandon Haley's Holocene Advisors, Paul Marshall and Ian Wace's Marshall Wace LLP, and James Crichton's Hitchwood Capital Management.

Let's now review hedge fund activity in other stocks similar to Mastercard Incorporated (NYSE:MA). We will take a look at Chevron Corporation (NYSE:CVX), AT&T Inc. (NYSE:T), The Coca-Cola Company (NYSE:KO), and Merck & Co., Inc. (NYSE:MRK). This group of stocks' market caps match MA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVX,48,1906617,-8 T,56,1851124,-14 KO,53,20695169,10 MRK,68,5195801,5 Average,56.25,7412178,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.25 hedge funds with bullish positions and the average amount invested in these stocks was $7412 million. That figure was $9492 million in MA's case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 48 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on Mastercard as the stock returned 22.8% and outperformed the market as well.

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

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