At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) undervalued? The smart money is becoming more confident. The number of long hedge fund bets moved up by 10 recently. Our calculations also showed that TTWO isn't among the 30 most popular stocks among hedge funds (view the video below). TTWO was in 60 hedge funds' portfolios at the end of June. There were 50 hedge funds in our database with TTWO holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
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. Let's review the latest hedge fund action regarding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).
How are hedge funds trading Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?
Heading into the third quarter of 2019, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. By comparison, 56 hedge funds held shares or bullish call options in TTWO a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Eminence Capital was the largest shareholder of Take-Two Interactive Software, Inc. (NASDAQ:TTWO), with a stake worth $193.4 million reported as of the end of March. Trailing Eminence Capital was Citadel Investment Group, which amassed a stake valued at $166.7 million. Melvin Capital Management, Palestra Capital Management, and Southpoint Capital Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Melvin Capital Management, managed by Gabriel Plotkin, established the biggest position in Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Melvin Capital Management had $113.5 million invested in the company at the end of the quarter. John Smith Clark's Southpoint Capital Advisors also made a $102.2 million investment in the stock during the quarter. The following funds were also among the new TTWO investors: David Fear's Thunderbird Partners, Christopher R. Hansen's Valiant Capital, and Steve Cohen's Point72 Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) but similarly valued. These stocks are Wayfair Inc (NYSE:W), Seagate Technology plc (NASDAQ:STX), Lincoln National Corporation (NYSE:LNC), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks' market caps match TTWO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position W,32,2313806,2 STX,23,1870540,-1 LNC,35,620312,-5 CTXS,34,2028377,0 Average,31,1708259,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $1708 million. That figure was $1521 million in TTWO's case. Lincoln National Corporation (NYSE:LNC) is the most popular stock in this table. On the other hand Seagate Technology plc (NASDAQ:STX) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) 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. Hedge funds were also right about betting on TTWO as the stock returned 10.4% during Q3 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.