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Were Hedge Funds Right About Mercadolibre Inc (MELI)?

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  • MELI

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Mercadolibre Inc (NASDAQ:MELI).

Is Mercadolibre Inc (NASDAQ:MELI) a healthy stock for your portfolio? The smart money was betting on the stock. The number of long hedge fund positions inched up by 5 in recent months. Mercadolibre Inc (NASDAQ:MELI) was in 74 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 81. Our calculations also showed that MELI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Eashwar Krishnan - Tybourne Capital
Eashwar Krishnan - Tybourne Capital

Eashwar Krishnan of Tybourne Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to review the new hedge fund action surrounding Mercadolibre Inc (NASDAQ:MELI).

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

At the end of June, a total of 74 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. By comparison, 60 hedge funds held shares or bullish call options in MELI a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is MELI A Good Stock To Buy?
Is MELI A Good Stock To Buy?

More specifically, Alkeon Capital Management was the largest shareholder of Mercadolibre Inc (NASDAQ:MELI), with a stake worth $578.4 million reported as of the end of June. Trailing Alkeon Capital Management was D E Shaw, which amassed a stake valued at $414.4 million. Tybourne Capital Management, Citadel Investment Group, and Fisher Asset 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 Prince Street Capital Management allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 14.68% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, setting aside 13.43 percent of its 13F equity portfolio to MELI.

Now, specific money managers have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, initiated the most valuable position in Mercadolibre Inc (NASDAQ:MELI). Moore Global Investments had $26.9 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $26.5 million position during the quarter. The other funds with brand new MELI positions are Amir Mokari's Emerson Point Capital, Frank Fu's CaaS Capital, and Benjamin A. Smith's Laurion Capital Management.

Let's check out hedge fund activity in other stocks similar to Mercadolibre Inc (NASDAQ:MELI). These stocks are NetEase, Inc (NASDAQ:NTES), CME Group Inc (NASDAQ:CME), Dell Technologies Inc. (NYSE:DELL), Duke Energy Corporation (NYSE:DUK), Canadian National Railway Company (NYSE:CNI), Truist Financial Corporation (NYSE:TFC), and Activision Blizzard, Inc. (NASDAQ:ATVI). All of these stocks' market caps are closest to MELI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTES,43,3720524,11 CME,62,2649845,2 DELL,62,5601143,8 DUK,36,566143,2 CNI,40,5310284,4 TFC,39,1019267,3 ATVI,78,3651606,2 Average,51.4,3216973,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.4 hedge funds with bullish positions and the average amount invested in these stocks was $3217 million. That figure was $4024 million in MELI's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 36 bullish hedge fund positions. Mercadolibre Inc (NASDAQ:MELI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MELI is 82.6. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately MELI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MELI were disappointed as the stock returned -4.9% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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