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Is U A Good Stock To Buy According To Hedge Funds?

Asma UL Husna
·5 min read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Unity Software Inc. (NYSE:U).

Is U a good stock to buy? Investors who are in the know were in a bullish mood. The number of long hedge fund positions rose by 35 lately. Unity Software Inc. (NYSE:U) was in 35 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that U isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a multitude of tools market participants can use to size up publicly traded companies. A duo of the most under-the-radar tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best money managers can outperform the market by a healthy amount (see the details here).

Brad Gerstner Altimeter Capital
Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to review the fresh hedge fund action surrounding Unity Software Inc. (NYSE:U).

Do Hedge Funds Think U Is A Good Stock To Buy Now?

At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35 from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in U a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Silver Lake Partners held the most valuable stake in Unity Software Inc. (NYSE:U), which was worth $3779.6 million at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $1131.7 million worth of shares. Light Street Capital, Altimeter Capital Management, and Thrive Capital 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 Thrive Capital allocated the biggest weight to Unity Software Inc. (NYSE:U), around 66.64% of its 13F portfolio. Silver Lake Partners is also relatively very bullish on the stock, designating 46.39 percent of its 13F equity portfolio to U.

Consequently, key money managers were breaking ground themselves. Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, initiated the biggest position in Unity Software Inc. (NYSE:U). Silver Lake Partners had $3.7796 billion invested in the company at the end of the quarter. Daniel Sundheim's D1 Capital Partners also made a $1.1317 billion investment in the stock during the quarter. The other funds with brand new U positions are Glen Kacher's Light Street Capital, Brad Gerstner's Altimeter Capital Management, and Joshua Kushner's Thrive Capital.

Let's now review hedge fund activity in other stocks similar to Unity Software Inc. (NYSE:U). We will take a look at American International Group Inc (NYSE:AIG), Genmab A/S (NASDAQ:GMAB), Hilton Worldwide Holdings Inc (NYSE:HLT), Palo Alto Networks Inc (NYSE:PANW), Roku, Inc. (NASDAQ:ROKU), LyondellBasell Industries NV (NYSE:LYB), and Verisign, Inc. (NASDAQ:VRSN). This group of stocks' market caps match U's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIG,38,1770145,-2 GMAB,18,203437,3 HLT,57,5109622,4 PANW,59,3197324,8 ROKU,59,1030571,18 LYB,31,604061,-1 VRSN,46,6088181,-1 Average,44,2571906,4.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2572 million. That figure was $6702 million in U's case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 18 bullish hedge fund positions. Unity Software Inc. (NYSE:U) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for U is 43.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on U as the stock returned 80.8% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.

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

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