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Were Hedge Funds Right About Piling Into Take-Two Interactive Software, Inc. (TTWO)?

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Take-Two Interactive Software, Inc. (NASDAQ:TTWO) and determine whether the smart money was really smart about this stock.

Is Take-Two Interactive Software, Inc. (NASDAQ:TTWO) a first-rate investment right now? Investors who are in the know are taking a bullish view. The number of bullish hedge fund positions inched up by 7 lately. Our calculations also showed that TTWO isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

According to most investors, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the top tier of this group, approximately 850 funds. Most estimates calculate that this group of people manage most of the smart money's total asset base, and by observing their inimitable equity investments, Insider Monkey has spotted several investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_193032" align="aligncenter" width="400"] William Harnisch of Peconic Partners LLC[/caption]

William Harnisch

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the latest hedge fund action regarding Take-Two Interactive Software, Inc. (NASDAQ:TTWO).

What does smart money think about Take-Two Interactive Software, Inc. (NASDAQ:TTWO)?

At the end of the first quarter, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in TTWO over the last 18 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is TTWO A Good Stock To Buy?

The largest stake in Take-Two Interactive Software, Inc. (NASDAQ:TTWO) was held by Melvin Capital Management, which reported holding $401.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $228.5 million position. Other investors bullish on the company included Holocene Advisors, Point72 Asset Management, and Thunderbird Partners. In terms of the portfolio weights assigned to each position Thunderbird Partners allocated the biggest weight to Take-Two Interactive Software, Inc. (NASDAQ:TTWO), around 11.66% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, earmarking 9.62 percent of its 13F equity portfolio to TTWO.

Now, key hedge funds have jumped into Take-Two Interactive Software, Inc. (NASDAQ:TTWO) headfirst. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Holocene Advisors had $180.4 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $125.1 million position during the quarter. The other funds with brand new TTWO positions are Aaron Cowen's Suvretta Capital Management, Andrew Immerman and Jeremy Schiffman's Palestra Capital Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Take-Two Interactive Software, Inc. (NASDAQ:TTWO) but similarly valued. These stocks are M&T Bank Corporation (NYSE:MTB), W.W. Grainger, Inc. (NYSE:GWW), CDW Corporation (NASDAQ:CDW), and Deutsche Bank AG (NYSE:DB). This group of stocks' market valuations are closest to TTWO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTB,21,687380,-11 GWW,26,345842,-3 CDW,36,947126,6 DB,12,916383,0 Average,23.75,724183,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $724 million. That figure was $1950 million in TTWO's case. CDW Corporation (NASDAQ:CDW) is the most popular stock in this table. On the other hand Deutsche Bank AG (NYSE:DB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately TTWO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TTWO were disappointed as the stock returned 18.4% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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