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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Momo Inc (NASDAQ:MOMO) makes for a good investment right now.
Is Momo Inc (NASDAQ:MOMO) a healthy stock for your portfolio? The best stock pickers are taking an optimistic view. The number of long hedge fund bets increased by 11 in recent months. Our calculations also showed that MOMO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). MOMO was in 38 hedge funds' portfolios at the end of December. There were 27 hedge funds in our database with MOMO positions at the end of the previous quarter.
According to most traders, hedge funds are assumed to be worthless, outdated investment tools of yesteryear. While there are over 8000 funds trading at present, Our experts hone in on the aristocrats of this group, around 850 funds. These hedge fund managers direct the lion's share of all hedge funds' total asset base, and by tracking their finest picks, Insider Monkey has found a number of investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_339612" align="aligncenter" width="400"]
Kerr Neilson of Platinum Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now we're going to take a look at the new hedge fund action surrounding Momo Inc (NASDAQ:MOMO).
What does smart money think about Momo Inc (NASDAQ:MOMO)?
At Q4's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in MOMO a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Momo Inc (NASDAQ:MOMO) was held by Renaissance Technologies, which reported holding $447.3 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $148.4 million position. Other investors bullish on the company included Yiheng Capital, Kylin Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Kylin Management allocated the biggest weight to Momo Inc (NASDAQ:MOMO), around 11.21% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, designating 9.72 percent of its 13F equity portfolio to MOMO.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Momo Inc (NASDAQ:MOMO). Arrowstreet Capital had $20.4 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $16.1 million investment in the stock during the quarter. The following funds were also among the new MOMO investors: Mark Kingdon's Kingdon Capital, Campbell Wilson's Old Well Partners, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Momo Inc (NASDAQ:MOMO) but similarly valued. These stocks are Owl Rock Capital Corporation (NYSE:ORCC), WABCO Holdings Inc. (NYSE:WBC), Arrow Electronics, Inc. (NYSE:ARW), and Dolby Laboratories, Inc. (NYSE:DLB). This group of stocks' market valuations are closest to MOMO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORCC,8,159825,2 WBC,34,1206287,2 ARW,34,680214,10 DLB,31,511426,3 Average,26.75,639438,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $639 million. That figure was $918 million in MOMO's case. WABCO Holdings Inc. (NYSE:WBC) is the most popular stock in this table. On the other hand Owl Rock Capital Corporation (NYSE:ORCC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Momo Inc (NASDAQ:MOMO) 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 stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately MOMO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MOMO were disappointed as the stock returned -38.8% during the first two and a half months of 2020 (through March 16th) and underperformed the market. 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.