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Here is Hedge Funds’ 7th Most Popular Stock Pick

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.

Is Visa Inc (NYSE:V) a bargain? Hedge funds are reducing their bets on the stock. Even though the number of bullish hedge fund bets decreased by 7 recently, Visa still ranks #7 among the 30 most popular stocks among hedge funds. V was in 117 hedge funds’ portfolios at the end of June. There were 124 hedge funds in our database with V positions at the end of March.

If you’d ask most stock holders, hedge funds are viewed as slow, old financial vehicles of yesteryear. While there are over 8000 funds in operation today, We choose to focus on the top tier of this group, about 750 funds. These hedge fund managers orchestrate the majority of the hedge fund industry’s total capital, and by watching their best stock picks, Insider Monkey has uncovered numerous investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Michael Lowenstein Kensico Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action surrounding Visa Inc (NYSE:V).

What does smart money think about Visa Inc (NYSE:V)?

At Q2’s end, a total of 117 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2019. On the other hand, there were a total of 109 hedge funds with a bullish position in V a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

V_oct2019

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in Visa Inc (NYSE:V), worth close to $3.4329 billion, accounting for 3.8% of its total 13F portfolio. Coming in second is Berkshire Hathaway, led by Warren Buffett, holding a $1.83 billion position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Charles Akre’s Akre Capital Management and Michael Lowenstein’s Kensico Capital.

Because Visa Inc (NYSE:V) has experienced a decline in interest from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their full holdings in the second quarter. Interestingly, Kenneth Tropin’s Graham Capital Management dropped the largest position of all the hedgies tracked by Insider Monkey, valued at about $37.5 million in stock, and Daniel Lascano’s Lomas Capital Management was right behind this move, as the fund dumped about $22.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Visa Inc (NYSE:V) but similarly valued. These stocks are Johnson & Johnson (NYSE:JNJ), JPMorgan Chase & Co. (NYSE:JPM), Exxon Mobil Corporation (NYSE:XOM), and Walmart Inc. (NYSE:WMT). This group of stocks’ market caps are closest to V’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JNJ 63 6757234 -6
JPM 90 11264732 -10
XOM 50 1332153 1
WMT 56 4984995 -1
Average 64.75 6084779 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.75 hedge funds with bullish positions and the average amount invested in these stocks was $6085 million. That figure was $15187 million in V’s case. JPMorgan Chase & Co. (NYSE:JPM) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks Visa Inc (NYSE:V) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately V wasn’t nearly as successful as these 20 stocks and hedge funds that were betting on V were disappointed as the stock returned -0.7% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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