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Hedge Funds Snapped Up Snap Inc. (SNAP) At The Wrong Time

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Snap Inc. (NYSE:SNAP) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Snap Inc. (NYSE:SNAP) a buy, sell, or hold? The smart money is getting more bullish. The number of bullish hedge fund bets rose by 12 lately. Our calculations also showed that SNAP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). SNAP was in 66 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 54 hedge funds in our database with SNAP 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s check out the latest hedge fund action surrounding Snap Inc. (NYSE:SNAP).

Hedge fund activity in Snap Inc. (NYSE:SNAP)

Heading into the first quarter of 2020, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SNAP over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SNAP A Good Stock To Buy?

The largest stake in Snap Inc. (NYSE:SNAP) was held by Citadel Investment Group, which reported holding $331 million worth of stock at the end of September. It was followed by Slate Path Capital with a $236.9 million position. Other investors bullish on the company included Coatue Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Slate Path Capital allocated the biggest weight to Snap Inc. (NYSE:SNAP), around 12.76% of its 13F portfolio. EastBay Asset Management is also relatively very bullish on the stock, earmarking 11.69 percent of its 13F equity portfolio to SNAP.

Now, specific money managers have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, assembled the biggest position in Snap Inc. (NYSE:SNAP). Woodline Partners had $56.1 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $32 million position during the quarter. The other funds with brand new SNAP positions are Zach Schreiber’s Point State Capital, Gavin Baker’s Atreides Management, and Steve Cohen’s Point72 Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Snap Inc. (NYSE:SNAP) but similarly valued. We will take a look at Liberty Broadband Corp (NASDAQ:LBRDK), AMETEK, Inc. (NYSE:AME), Best Buy Co., Inc. (NYSE:BBY), and Palo Alto Networks Inc (NYSE:PANW). This group of stocks’ market caps match SNAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LBRDK 46 4094159 2
AME 32 809768 -1
BBY 25 686035 -3
PANW 47 3168440 -5
Average 37.5 2189601 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $2190 million. That figure was $2389 million in SNAP’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Best Buy Co., Inc. (NYSE:BBY) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Snap Inc. (NYSE:SNAP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately SNAP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SNAP were disappointed as the stock returned -29.9% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.

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

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