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Were Hedge Funds Right About Piling Into Square, Inc. (SQ)?

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31st, so let’s proceed with the discussion of the hedge fund sentiment on Square, Inc. (NYSE:SQ).

Square, Inc. (NYSE:SQ) was in 89 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 73. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. SQ has seen an increase in hedge fund interest lately. There were 73 hedge funds in our database with SQ holdings at the end of September. Our calculations also showed that SQ isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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. Now let's review the key hedge fund action regarding Square, Inc. (NYSE:SQ).

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

At fourth quarter's end, a total of 89 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SQ over the last 22 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SQ A Good Stock To Buy?
Is SQ A Good Stock To Buy?

More specifically, ARK Investment Management was the largest shareholder of Square, Inc. (NYSE:SQ), with a stake worth $1541.4 million reported as of the end of December. Trailing ARK Investment Management was Coatue Management, which amassed a stake valued at $1335.2 million. Bares Capital Management, Lone Pine Capital, and Whale Rock 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 Bares Capital Management allocated the biggest weight to Square, Inc. (NYSE:SQ), around 21.35% of its 13F portfolio. Tekne Capital Management is also relatively very bullish on the stock, setting aside 16.68 percent of its 13F equity portfolio to SQ.

As one would reasonably expect, some big names have been driving this bullishness. Tiger Global Management LLC, managed by Chase Coleman, assembled the most valuable position in Square, Inc. (NYSE:SQ). Tiger Global Management LLC had $88.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $59.9 million position during the quarter. The following funds were also among the new SQ investors: Christopher Lyle's SCGE Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Square, Inc. (NYSE:SQ) but similarly valued. We will take a look at American Express Company (NYSE:AXP), Zoom Video Communications, Inc. (NASDAQ:ZM), The Estee Lauder Companies Inc (NYSE:EL), Intuitive Surgical, Inc. (NASDAQ:ISRG), General Electric Company (NYSE:GE), Rio Tinto Group (NYSE:RIO), and Diageo plc (NYSE:DEO). This group of stocks' market caps resemble SQ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXP,60,21887073,12 ZM,59,6002261,3 EL,51,3593398,5 ISRG,49,1802145,-1 GE,69,5684620,24 RIO,26,1711997,3 DEO,23,667041,4 Average,48.1,5906934,7.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.1 hedge funds with bullish positions and the average amount invested in these stocks was $5907 million. That figure was $8819 million in SQ's case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) is more popular among hedge funds. Our overall hedge fund sentiment score for SQ is 90. 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 returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on SQ as the stock returned 12.7% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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