How can one determine whether JD.Com Inc (ADR) (NASDAQ:JD) makes for a good investment at the moment? The Insider Monkey team analyzes the sentiment of a select group of only the top investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right even collectively, but data shows that their consensus long positions have historically outperformed broader market benchmarks. In support of this thesis, Goldman Sachs’ VIP list, which includes the 50 most-owned stocks among hedge funds’ ten largest holdings, has beaten the S&P 500 gauge on a quarterly basis 64% of the time since 2001. Most strikingly, this basket of stocks compiled by Goldman delivered a gain of 23% in 2015 during a flat market, so it clearly pays off to follow hedge fund activity. That being said, let’s take a close look at the hedge fund activity around JD.Com during the final quarter of 2015.
Chinese online retailer JD.Com Inc (ADR) (NASDAQ:JD) has experienced an increase in enthusiasm from smart money in recent months. There were 78 investors in our database with JD.Com positions on December 31, up from 71 at the end of September. Those 78 investors also held 38.50% of the company’s stock, making it one of the top five large-cap stocks in which they have the highest percentage of ownership. The level and the change in hedge fund popularity aren’t the only variables you need to analyze todecipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as IntercontinentalExchange Inc (NYSE:ICE), Illumina, Inc. (NASDAQ:ILMN), and Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) to gather more data points.
To the average investor there are several metrics investors employ to value their stock investments. A couple of the less known metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace their index-focused peers by a very impressive amount (see the details here).
After a strong 2015 that saw them gain 33%, shares of JD.Com have given back a lot of those gains early in 2016, falling victim to various market forces working against them, including general bearishness on China. This could be the ideal time to invest in the stock as a result, as once worries over China’s growth subside (and there will almost assuredly remain solid growth in the country for many years to come), JD.Com should quickly rebound to previous levels or higher. In fact, JD.Com proved on March 1 that the fears are slightly overblown, as it posted very solid earnings and guidance, which beat estimates. Nonetheless, the market largely ignored the strong earning report and shares are down slightly in March.
Chase Coleman‘s Tiger Global Management had this to say about JD.Com and its long-term potential in its first quarter of 2015 investor letter:
“One of our largest long positions across TGI, TGLO and TGIO is JD.com, the leading fulfillment-based e-commerce company in China and the second largest Chinese e-commerce business after Alibaba Group. JD is levered to “retail leapfrogging” in emerging markets, which we believe is one of the most powerful secular themes globally. Given the limited retail footprint and relatively small size of leading offline retailers, e-commerce companies have been able to achieve dominant positions in certain developing markets. Moreover, the lack of reliable third party logistics companies in countries like China and India has forced online players to build their own last mile delivery networks, creating a significant competitive advantage. Over the coming decades, we expect e-commerce to capture the majority of growth in non grocery retail spending in developing markets. […] While the stock has performed well and expectations have risen, we continue to believe that JD is attractively valued over the long term and well-positioned within a large and growing e-commerce market. As with other rapidly growing retail businesses, we expect JD’s incremental margins to increase with time as the company leverages fixed costs, resulting in attractive net margins once the company reaches scale. Between 2014 and 2022, we expect Chinese e-commerce penetration to roughly double from 20% to 40%, implying an addressable market size of approximately $1.3 trillion in 2022. Given JD’s leading position in fulfilled e-commerce and the scale of its logistics network, we believe the company can grow its market share meaningfully over time. If JD is able to double its e-commerce market share from 10% to 20% over the next seven years, and our assumption about e-commerce penetration is correct, the company could represent a percentage of the addressable retail market in China comparable to Walmart in the US.”
After increasing its position by over 300% in the first quarter of 2015, Mr. Coleman’s firm hiked it by another 236% in the second quarter, giving it ownership of over 70.00 million shares at that time. As of the end of 2015, Tiger Global held 59.62 million JD.Com shares valued at over $1.9 billion.
With all of this in mind, let’s take a peek at how some of the other investors in our database have been trading JD.Com Inc (ADR) (NASDAQ:JD) lately, which we’ll do on the next page.
What have hedge funds been doing with JD.Com Inc (ADR) (NASDAQ:JD)?
At the end of the fourth quarter, a total of 78 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 10% rise from the end of the third quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or had already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Hillhouse Capital Management, managed by Lei Zhang, holds the most valuable position in JD.Com Inc (ADR) (NASDAQ:JD). Hillhouse Capital Management has a $3.96 billion position in the stock, comprising 69.2% of its 13F portfolio. Sitting at the No. 2 spot is the aforementioned Tiger Global Management, holding a $1.92 billion position; the fund has 15.5% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Stephen Mandel’s Lone Pine Capital, William B. Gray’s Orbis Investment Management, and Philippe Laffont’s Coatue Management.
Consequently, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in JD.Com Inc (ADR) (NASDAQ:JD). Arrowstreet Capital had $138 million invested in the company at the end of the quarter. Eric W. Mandelblatt’s Soroban Capital Partners also made a $137.5 million investment in the stock during the quarter. The other funds with new positions in the stock are David Gallo’s Valinor Management LLC, Wang Chen’s Serenity Capital, and Yi Xin’s Ariose Capital.
Let’s go over hedge fund activity in other stocks similar to JD.Com Inc (ADR) (NASDAQ:JD). These stocks are IntercontinentalExchange Inc (NYSE:ICE), Illumina, Inc. (NASDAQ:ILMN), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), and Air Products & Chemicals, Inc. (NYSE:APD). All of these stocks’ market caps are similar to JD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICE | 50 | 2395027 | 12 |
| ILMN | 40 | 1318987 | -22 |
| PBR | 24 | 165893 | 0 |
| APD | 55 | 6752027 | -22 |
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $2.66 billion. That figure was $10.84 billion in JD’s case. Air Products & Chemicals, Inc. (NYSE:APD) is the most popular stock in this table. On the other hand Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks JD.Com Inc (ADR) (NASDAQ:JD) is more popular among hedge funds. Considering that hedge funds are very fond of this stock in relation to its market cap peers and particularly in light of it being an (ADR) stock, which they tend to not invest heavily in, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
