Did Hedge Funds Make The Right Call On The Meet Group, Inc. (MEET) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Meet Group, Inc. (NASDAQ:MEET) and determine whether hedge funds had an edge regarding this stock.

The Meet Group, Inc. (NASDAQ:MEET) has experienced an increase in activity from the world’s largest hedge funds in recent months. MEET was in 21 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with MEET holdings at the end of the previous quarter. Our calculations also showed that MEET 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Alex Litowitz Magnetar Capital

Alec Litowitz of Magnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a gander at the key hedge fund action surrounding The Meet Group, Inc. (NASDAQ:MEET).

Hedge fund activity in The Meet Group, Inc. (NASDAQ:MEET)

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in MEET a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Magnetar Capital was the largest shareholder of The Meet Group, Inc. (NASDAQ:MEET), with a stake worth $30.1 million reported as of the end of September. Trailing Magnetar Capital was Luxor Capital Group, which amassed a stake valued at $25.9 million. Water Island Capital, Jet Capital Investors, and Arrowstreet Capital 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 Jet Capital Investors allocated the biggest weight to The Meet Group, Inc. (NASDAQ:MEET), around 5.28% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, designating 1.08 percent of its 13F equity portfolio to MEET.

As aggregate interest increased, key hedge funds were breaking ground themselves. Magnetar Capital, managed by Alec Litowitz and Ross Laser, assembled the most valuable position in The Meet Group, Inc. (NASDAQ:MEET). Magnetar Capital had $30.1 million invested in the company at the end of the quarter. John Orrico’s Water Island Capital also made a $14.9 million investment in the stock during the quarter. The following funds were also among the new MEET investors: Matthew Mark’s Jet Capital Investors, Noam Gottesman’s GLG Partners, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors.

Let’s now review hedge fund activity in other stocks similar to The Meet Group, Inc. (NASDAQ:MEET). These stocks are QuinStreet Inc (NASDAQ:QNST), G1 Therapeutics, Inc. (NASDAQ:GTHX), Energy Recovery, Inc. (NASDAQ:ERII), and BioSpecifics Technologies Corp. (NASDAQ:BSTC). This group of stocks’ market values match MEET’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QNST 22 93394 4
GTHX 13 25511 2
ERII 11 45757 4
BSTC 9 52752 -2
Average 13.75 54354 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $97 million in MEET’s case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand BioSpecifics Technologies Corp. (NASDAQ:BSTC) is the least popular one with only 9 bullish hedge fund positions. The Meet Group, Inc. (NASDAQ:MEET) 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. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately MEET wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MEET were disappointed as the stock returned 6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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