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Hedge Funds Done Buying Square, Inc. (SQ)?

Debasis Saha

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Square, Inc. (NYSE:SQ) based on those filings.

Square, Inc. (NYSE:SQ) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 56 hedge funds' portfolios at the end of March. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as T. Rowe Price Group, Inc. (NASDAQ:TROW), Verisk Analytics, Inc. (NASDAQ:VRSK), and Public Service Enterprise Group Incorporated (NYSE:PEG) to gather more data points. Our calculations also showed that SQ isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are many metrics shareholders use to value their stock investments. Some of the most underrated metrics are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outperform the S&P 500 by a solid amount (see the details here).

[caption id="attachment_29562" align="aligncenter" width="400"] Stephen Mandel of Lone Pine Capital[/caption]

Lone Pine Capital 2015 Q2 Investor Letter

At Insider Monkey we leave no stone unturned when looking for the next great investment idea.  For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to review the new hedge fund action regarding Square, Inc. (NYSE:SQ).

What have hedge funds been doing with Square, Inc. (NYSE:SQ)?

At the end of the first quarter, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SQ over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SQ A Good Stock To Buy?

More specifically, Bares Capital Management was the largest shareholder of Square, Inc. (NYSE:SQ), with a stake worth $380.2 million reported as of the end of September. Trailing Bares Capital Management was Lone Pine Capital, which amassed a stake valued at $350.8 million. Citadel Investment Group, Coatue Management, and HMI Capital 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 North Peak Capital allocated the biggest weight to Square, Inc. (NYSE:SQ), around 15.01% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 13.71 percent of its 13F equity portfolio to SQ.

Since Square, Inc. (NYSE:SQ) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedge funds that elected to cut their full holdings in the third quarter. Interestingly, Andreas Halvorsen's Viking Global said goodbye to the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth close to $628.4 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also cut its stock, about $29.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Square, Inc. (NYSE:SQ) but similarly valued. These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), Verisk Analytics, Inc. (NASDAQ:VRSK), Public Service Enterprise Group Incorporated (NYSE:PEG), and Motorola Solutions Inc (NYSE:MSI). This group of stocks' market values are similar to SQ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TROW,24,191083,-3 VRSK,31,924894,-2 PEG,34,901655,3 MSI,34,308519,-7 Average,30.75,581538,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $582 million. That figure was $1609 million in SQ's case. Public Service Enterprise Group Incorporated (NYSE:PEG) is the most popular stock in this table. On the other hand T. Rowe Price Group, Inc. (NASDAQ:TROW) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on SQ as the stock returned 55.6% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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