Did Hedge Funds Make The Right Call On Zebra Technologies Corporation (ZBRA) ?

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 Zebra Technologies Corporation (NASDAQ:ZBRA) and determine whether hedge funds had an edge regarding this stock.

Zebra Technologies Corporation (NASDAQ:ZBRA) has experienced a decrease in hedge fund sentiment of late. ZBRA was in 28 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with ZBRA positions at the end of the previous quarter. Our calculations also showed that ZBRA 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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 let’s check out the fresh hedge fund action encompassing Zebra Technologies Corporation (NASDAQ:ZBRA).

How are hedge funds trading Zebra Technologies Corporation (NASDAQ:ZBRA)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 35 hedge funds with a bullish position in ZBRA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is ZBRA A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Cedar Rock Capital, managed by Andy Brown, holds the largest position in Zebra Technologies Corporation (NASDAQ:ZBRA). Cedar Rock Capital has a $202.4 million position in the stock, comprising 5.4% of its 13F portfolio. The second largest stake is held by Ariel Investments, led by John W. Rogers, holding a $91.6 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Edward Goodnow’s Goodnow Investment Group, Thomas Bancroft’s Makaira Partners and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to Zebra Technologies Corporation (NASDAQ:ZBRA), around 17.6% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, designating 14.6 percent of its 13F equity portfolio to ZBRA.

Judging by the fact that Zebra Technologies Corporation (NASDAQ:ZBRA) has experienced falling interest from hedge fund managers, it’s safe to say that there were a few hedgies that elected to cut their positions entirely by the end of the first quarter. Interestingly, Donald Sussman’s Paloma Partners dumped the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $26.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $24 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zebra Technologies Corporation (NASDAQ:ZBRA) but similarly valued. These stocks are FactSet Research Systems Inc. (NYSE:FDS), Synchrony Financial (NYSE:SYF), Moderna, Inc. (NASDAQ:MRNA), and Tractor Supply Company (NASDAQ:TSCO). This group of stocks’ market values are closest to ZBRA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FDS 21 210129 -3
SYF 37 1011642 -7
MRNA 25 424500 13
TSCO 37 510015 -7
Average 30 539072 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $539 million. That figure was $576 million in ZBRA’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 21 bullish hedge fund positions. Zebra Technologies Corporation (NASDAQ:ZBRA) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ZBRA as the stock returned 39.4% during the second quarter and outperformed the market by an even larger margin.

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