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Hedge Funds Have Never Been This Bullish On Square, Inc. (SQ)

Asma UL Husna

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 28. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Square, Inc. (NYSE:SQ).

Square, Inc. (NYSE:SQ) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that SQ isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

SQ_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the key hedge fund action surrounding Square, Inc. (NYSE:SQ).

Hedge fund activity in Square, Inc. (NYSE:SQ)

At the end of the second quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SQ over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

COATUE MANAGEMENT

The largest stake in Square, Inc. (NYSE:SQ) was held by Coatue Management, which reported holding $319.4 million worth of stock at the end of March. It was followed by D E Shaw with a $316 million position. Other investors bullish on the company included Bares Capital Management, Lone Pine Capital, and Viking Global.

Now, specific money managers were breaking ground themselves. Coatue Management created the most valuable position in Square, Inc. (NYSE:SQ). Coatue Management had $319.4 million invested in the company at the end of the quarter. Andreas Halvorsen's Viking Global also made a $192.7 million investment in the stock during the quarter. The following funds were also among the new SQ investors: Beeneet Kothari's Tekne Capital Management, Stanley Druckenmiller's Duquesne Capital, and David Atterbury's Whetstone Capital Advisors.

Let's now review hedge fund activity in other stocks similar to Square, Inc. (NYSE:SQ). We will take a look at Shopify Inc (NYSE:SHOP), Nutrien Ltd. (NYSE:NTR), Xcel Energy Inc (NASDAQ:XEL), and Mercadolibre Inc (NASDAQ:MELI). This group of stocks' market valuations match SQ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHOP,26,2201348,1 NTR,22,211755,-3 XEL,18,496716,2 MELI,52,3846834,11 Average,29.5,1689163,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1689 million. That figure was $2056 million in SQ's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) 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 SQ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SQ were disappointed as the stock returned -14.6% 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.

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