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Were Hedge Funds Right About Piling Into Facebook Inc (FB)?

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Debasis Saha
·5 min read
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Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 Facebook Inc (NASDAQ:FB).

Facebook Inc (NASDAQ:FB) was in 242 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 230. This means the bullish number of hedge fund positions in this stock reached a brand new all time high. There were 230 hedge funds in our database with FB positions at the end of the third quarter. Our calculations also showed that FB ranked #3 among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to review the recent hedge fund action encompassing Facebook Inc (NASDAQ:FB).

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

Heading into the first quarter of 2021, a total of 242 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2020. By comparison, 198 hedge funds held shares or bullish call options in FB a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FB A Good Stock To Buy?
Is FB A Good Stock To Buy?

The largest stake in Facebook Inc (NASDAQ:FB) was held by SB Management, which reported holding $3278.7 million worth of stock at the end of December. It was followed by Fundsmith LLP with a $1753.4 million position. Other investors bullish on the company included Tiger Global Management LLC, Eagle Capital Management, and Melvin Capital Management. In terms of the portfolio weights assigned to each position Immersion Capital allocated the biggest weight to Facebook Inc (NASDAQ:FB), around 26.14% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, earmarking 21.76 percent of its 13F equity portfolio to FB.

Consequently, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, assembled the largest position in Facebook Inc (NASDAQ:FB). Melvin Capital Management had $1.2729 billion invested in the company at the end of the quarter. Mark Massey's AltaRock Partners also made a $467.6 million investment in the stock during the quarter. The following funds were also among the new FB investors: Andreas Halvorsen's Viking Global, Anand Desai's Darsana Capital Partners, and Zach Schreiber's Point State Capital.

Let's also examine hedge fund activity in other stocks similar to Facebook Inc (NASDAQ:FB). We will take a look at Tesla Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Berkshire Hathaway Inc. (NYSE:BRK-B), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT). This group of stocks' market values match FB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSLA,68,12308025,1 BABA,156,17892090,-10 TSM,72,11843403,5 BRK-B,110,20795968,1 V,166,23599162,6 JNJ,81,5820696,-1 WMT,70,6197019,1 Average,103.3,14065195,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 103.3 hedge funds with bullish positions and the average amount invested in these stocks was $14065 million. That figure was $38234 million in FB's case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 68 bullish hedge fund positions. Compared to these stocks Facebook Inc (NASDAQ:FB) is more popular among hedge funds. Our overall hedge fund sentiment score for FB is 99. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Unfortunately FB wasn't nearly as successful as these 30 stocks and hedge funds that were betting on FB were disappointed as the stock returned 10.6% since the end of the fourth quarter (through 4/19) and slightly underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the more diversified list of the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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