Hedge Funds Have Never Been This Bullish On Square, Inc. (SQ)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Square, Inc. (NYSE:SQ).

Is Square, Inc. (NYSE:SQ) a superb investment right now? Hedge funds are becoming more confident. The number of long hedge fund positions went up by 15 recently. Our calculations also showed that sq isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Let’s review the new hedge fund action surrounding Square, Inc. (NYSE:SQ).

What does the smart money think about Square, Inc. (NYSE:SQ)?

Heading into the second quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in SQ a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with SQ Positions

Among these funds, D E Shaw held the most valuable stake in Square, Inc. (NYSE:SQ), which was worth $373.6 million at the end of the first quarter. On the second spot was Whale Rock Capital Management which amassed $167.5 million worth of shares. Moreover, Matrix Capital Management, Citadel Investment Group, and Jericho Capital Asset Management were also bullish on Square, Inc. (NYSE:SQ), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, specific money managers have jumped into Square, Inc. (NYSE:SQ) headfirst. Jericho Capital Asset Management, managed by Josh Resnick, initiated the largest position in Square, Inc. (NYSE:SQ). Jericho Capital Asset Management had $122.8 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $33.7 million position during the quarter. The following funds were also among the new SQ investors: Benjamin A. Smith’s Laurion Capital Management, Brandon Haley’s Holocene Advisors, and Seth Wunder’s Black-and-White Capital.

Let’s now review hedge fund activity in other stocks similar to Square, Inc. (NYSE:SQ). We will take a look at Canon Inc. (NYSE:CAJ), The Allstate Corporation (NYSE:ALL), LyondellBasell Industries NV (NYSE:LYB), and Welltower Inc. (NYSE:WELL). This group of stocks’ market values are similar to SQ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAJ 7 93211 1
ALL 36 1776463 2
LYB 36 1695047 -1
WELL 23 810807 6
Average 25.5 1093882 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1094 million. That figure was $1399 million in SQ’s case. The Allstate Corporation (NYSE:ALL) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Square, Inc. (NYSE:SQ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately SQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SQ were disappointed as the stock returned -15% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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