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Is MicroStrategy Incorporated (MSTR) A Good Stock To Buy?

Nina Todic

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 September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards MicroStrategy Incorporated (NASDAQ:MSTR).

MicroStrategy Incorporated (NASDAQ:MSTR) investors should be aware of an increase in activity from the world's largest hedge funds lately. MSTR was in 20 hedge funds' portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with MSTR holdings at the end of the previous quarter. Our calculations also showed that MSTR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the recent hedge fund action encompassing MicroStrategy Incorporated (NASDAQ:MSTR).

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

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MSTR over the last 17 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Hawk Ridge Management was the largest shareholder of MicroStrategy Incorporated (NASDAQ:MSTR), with a stake worth $49.6 million reported as of the end of September. Trailing Hawk Ridge Management was Lynrock Lake, which amassed a stake valued at $27.1 million. Arrowstreet Capital, D E Shaw, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to MicroStrategy Incorporated (NASDAQ:MSTR), around 9.93% of its 13F portfolio. Lynrock Lake is also relatively very bullish on the stock, dishing out 3.46 percent of its 13F equity portfolio to MSTR.

As one would reasonably expect, specific money managers have jumped into MicroStrategy Incorporated (NASDAQ:MSTR) headfirst. Millennium Management, managed by Israel Englander, created the largest position in MicroStrategy Incorporated (NASDAQ:MSTR). Millennium Management had $3.5 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle's Springbok Capital and Matthew Hulsizer's PEAK6 Capital Management.

Let's check out hedge fund activity in other stocks similar to MicroStrategy Incorporated (NASDAQ:MSTR). We will take a look at eHealth, Inc. (NASDAQ:EHTH), The Michaels Companies, Inc. (NASDAQ:MIK), Peabody Energy Corporation (NYSE:BTU), and SFL Corporation Ltd. (NYSE:SFL). This group of stocks' market caps are similar to MSTR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EHTH,21,278384,-5 MIK,21,76221,-5 BTU,31,725364,0 SFL,12,61459,1 Average,21.25,285357,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $165 million in MSTR's case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand SFL Corporation Ltd. (NYSE:SFL) is the least popular one with only 12 bullish hedge fund positions. MicroStrategy Incorporated (NASDAQ:MSTR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MSTR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MSTR investors were disappointed as the stock returned 1.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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