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Hedge Funds Dropped The Ball On Zebra Technologies Corporation (ZBRA)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Zebra Technologies Corporation (NASDAQ:ZBRA).

Is Zebra Technologies Corporation (NASDAQ:ZBRA) the right investment to pursue these days? The best stock pickers are becoming less confident. The number of long hedge fund bets decreased by 2 lately. Our calculations also showed that ZBRA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ZBRA was in 18 hedge funds’ portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with ZBRA positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the new hedge fund action encompassing Zebra Technologies Corporation (NASDAQ:ZBRA).

What have hedge funds been doing with Zebra Technologies Corporation (NASDAQ:ZBRA)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZBRA over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Ariel Investments held the most valuable stake in Zebra Technologies Corporation (NASDAQ:ZBRA), which was worth $108.1 million at the end of the third quarter. On the second spot was Makaira Partners which amassed $101.7 million worth of shares. Goodnow Investment Group, AQR Capital Management, and Millennium Management 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 Makaira Partners allocated the biggest weight to Zebra Technologies Corporation (NASDAQ:ZBRA), around 16.17% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, setting aside 13.24 percent of its 13F equity portfolio to ZBRA.

Because Zebra Technologies Corporation (NASDAQ:ZBRA) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few money managers that slashed their entire stakes heading into Q4. At the top of the heap, Principal Global Investors’s Columbus Circle Investors cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $128.9 million in call options, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund said goodbye to about $28.7 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Zebra Technologies Corporation (NASDAQ:ZBRA). We will take a look at NiSource Inc. (NYSE:NI), Rollins, Inc. (NYSE:ROL), Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), and Open Text Corporation (NASDAQ:OTEX). This group of stocks’ market valuations match ZBRA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NI 22 811933 0
ROL 25 306391 2
NCLH 30 1012048 -5
OTEX 14 610442 -2
Average 22.75 685204 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $685 million. That figure was $428 million in ZBRA’s case. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 14 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ZBRA as the stock returned 21.6% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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