How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding COMSCORE, Inc. (NASDAQ:SCOR).
Is COMSCORE, Inc. (NASDAQ:SCOR) ready to rally soon? Investors who are in the know are turning bullish. The number of long hedge fund positions advanced by 3 in recent months. Our calculations also showed that SCOR isn't among the 30 most popular stocks among hedge funds (see the video below). SCOR was in 17 hedge funds' portfolios at the end of June. There were 14 hedge funds in our database with SCOR positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let's take a look at the latest hedge fund action surrounding COMSCORE, Inc. (NASDAQ:SCOR).
Hedge fund activity in COMSCORE, Inc. (NASDAQ:SCOR)
Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCOR over the last 16 quarters. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, RGM Capital held the most valuable stake in COMSCORE, Inc. (NASDAQ:SCOR), which was worth $22.6 million at the end of the second quarter. On the second spot was Bares Capital Management which amassed $16.5 million worth of shares. Moreover, Lion Point, Royce & Associates, and D E Shaw were also bullish on COMSCORE, Inc. (NASDAQ:SCOR), allocating a large percentage of their portfolios to this stock.
Now, key money managers were breaking ground themselves. Clearline Capital, managed by Marc Majzner, established the most outsized position in COMSCORE, Inc. (NASDAQ:SCOR). Clearline Capital had $4.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $2.2 million investment in the stock during the quarter. The other funds with brand new SCOR positions are Jeffrey Smith's Starboard Value LP, John Overdeck and David Siegel's Two Sigma Advisors, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now take a look at hedge fund activity in other stocks similar to COMSCORE, Inc. (NASDAQ:SCOR). We will take a look at Merus N.V. (NASDAQ:MRUS), Bridgewater Bancshares, Inc. (NASDAQ:BWB), Hibbett Sports, Inc. (NASDAQ:HIBB), and Telaria, Inc. (NYSE:TLRA). This group of stocks' market valuations are closest to SCOR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRUS,7,108466,1 BWB,6,29062,-1 HIBB,15,76793,0 TLRA,14,66726,1 Average,10.5,70262,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $82 million in SCOR's case. Hibbett Sports, Inc. (NASDAQ:HIBB) is the most popular stock in this table. On the other hand Bridgewater Bancshares, Inc. (NASDAQ:BWB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks COMSCORE, Inc. (NASDAQ:SCOR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SCOR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SCOR were disappointed as the stock returned -63% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.