Should You Be Bullish on Nasdaq, Inc. (NDAQ)?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Nasdaq, Inc. (NASDAQ:NDAQ).

Is Nasdaq, Inc. (NASDAQ:NDAQ) undervalued? It looks like investors who are in the know are becoming more confident. The number of long hedge fund bets advanced by two to 29 during the third quarter of 2016. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher 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 C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Pearson PLC (ADR) (NYSE:PSO), and Citizens Financial Group Inc (NYSE:CFG) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a look at the recent action surrounding Nasdaq, Inc. (NASDAQ:NDAQ).

How have hedgies been trading Nasdaq, Inc. (NASDAQ:NDAQ)?

A total of 29 funds followed by Insider Monkey held long positions in Nasdaq heading into the fourth quarter, an increase of 7% from the end of June. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management has the biggest position in Nasdaq, Inc. (NASDAQ:NDAQ), worth close to $149.4 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $48.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Israel Englander’s Millennium Management, Jim Simons’ Renaissance Technologies, and David Harding’s Winton Capital Management.

As industrywide interest jumped, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in NASDAQ OMX Group, Inc. (NASDAQ:NDAQ). Arrowstreet Capital had $4.4 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $3.4 million position during the quarter. The following funds were also among the new NDAQ investors: George Hall’s Clinton Group, Ken Griffin’s Citadel Investment Group, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nasdaq, Inc. (NASDAQ:NDAQ) but similarly valued. We will take a look at C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Pearson PLC (ADR) (NYSE:PSO), Citizens Financial Group Inc (NYSE:CFG), and Pentair, Ltd. Registered Share (NYSE:PNR). All of these stocks’ market caps resemble NDAQ’s market cap.

As you can see these stocks had an average of 24 funds with bullish positions and the average amount invested in these stocks was $656 million. That figure was $402 million in NDAQ’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table, while Pearson PLC (ADR) (NYSE:PSO) is the least popular one with only six investors tracked by us reporting ownership of the stock. Nasdaq, Inc. (NASDAQ:NDAQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Citizens Financial Group Inc (NYSE:CFG) might be a better candidate to consider a long position.