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Here’s What Hedge Funds Think About MicroStrategy Incorporated (MSTR)

Nina Todic

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards MicroStrategy Incorporated (NASDAQ:MSTR) to find out whether it was one of their high conviction long-term ideas.

MicroStrategy Incorporated (NASDAQ:MSTR) has seen a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that mstr isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Brown Hawk Ridge Partners

We're going to review the new hedge fund action encompassing MicroStrategy Incorporated (NASDAQ:MSTR).

How have hedgies been trading MicroStrategy Incorporated (NASDAQ:MSTR)?

Heading into the second quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MSTR over the last 15 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with MSTR Positions

Among these funds, Hawk Ridge Management held the most valuable stake in MicroStrategy Incorporated (NASDAQ:MSTR), which was worth $29.9 million at the end of the first quarter. On the second spot was Echo Street Capital Management which amassed $23.5 million worth of shares. Moreover, Lynrock Lake, D E Shaw, and GLG Partners were also bullish on MicroStrategy Incorporated (NASDAQ:MSTR), allocating a large percentage of their portfolios to this stock.

Seeing as MicroStrategy Incorporated (NASDAQ:MSTR) has witnessed falling interest from hedge fund managers, we can see that there were a few fund managers who were dropping their entire stakes heading into Q3. Interestingly, Ricky Sandler's Eminence Capital cut the biggest position of the 700 funds followed by Insider Monkey, worth an estimated $11.5 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund dropped about $2.1 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to MicroStrategy Incorporated (NASDAQ:MSTR). These stocks are Central Garden & Pet Co (NASDAQ:CENT), Park National Corporation (NYSE:PRK), MRC Global Inc (NYSE:MRC), and Calavo Growers, Inc. (NASDAQ:CVGW). This group of stocks' market values match MSTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CENT,16,124562,-8 PRK,5,12810,-2 MRC,18,105875,3 CVGW,12,46900,-2 Average,12.75,72537,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $185 million in MSTR's case. MRC Global Inc (NYSE:MRC) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks MicroStrategy Incorporated (NASDAQ:MSTR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MSTR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MSTR were disappointed as the stock returned -7.3% during the same period 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 13 of these stocks already outperformed the market in Q2.

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

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