Is EA A Good Stock To Buy Now?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Electronic Arts Inc. (NASDAQ:EA) based on that data.

Is EA a good stock to buy now? Electronic Arts Inc. (NASDAQ:EA) has seen a decrease in enthusiasm from smart money lately. Electronic Arts Inc. (NASDAQ:EA) was in 62 hedge funds’ portfolios at the end of September. The all time high for this statistics is 79. There were 67 hedge funds in our database with EA holdings at the end of June. Our calculations also showed that EA isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a peek at the latest hedge fund action regarding Electronic Arts Inc. (NASDAQ:EA).

How have hedgies been trading Electronic Arts Inc. (NASDAQ:EA)?

At Q3’s end, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EA over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Electronic Arts Inc. (NASDAQ:EA), with a stake worth $277.2 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $257 million. Arrowstreet Capital, SoMa Equity Partners, and GLG Partners 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 Crescent Park Management allocated the biggest weight to Electronic Arts Inc. (NASDAQ:EA), around 4.39% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, earmarking 4.17 percent of its 13F equity portfolio to EA.

Since Electronic Arts Inc. (NASDAQ:EA) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of money managers that elected to cut their full holdings in the third quarter. Interestingly, James Parsons’s Junto Capital Management said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $37.4 million in stock. William Harnisch’s fund, Peconic Partners LLC, also said goodbye to its stock, about $14.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Electronic Arts Inc. (NASDAQ:EA) but similarly valued. These stocks are Cognizant Technology Solutions Corp (NASDAQ:CTSH), Bank of Montreal (NYSE:BMO), BCE Inc. (NYSE:BCE), Prudential Public Limited Company (NYSE:PUK), Banco Santander (Brasil) SA (NYSE:BSBR), L3Harris Technologies, Inc. (NYSE:LHX), and The Kraft Heinz Company (NASDAQ:KHC). This group of stocks’ market valuations are closest to EA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTSH 45 3326420 6
BMO 10 112811 -3
BCE 10 84651 0
PUK 4 7017 -1
BSBR 5 9931 -5
LHX 42 1149064 -8
KHC 39 10114221 4
Average 22.1 2114874 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $2115 million. That figure was $1376 million in EA’s case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Electronic Arts Inc. (NASDAQ:EA) is more popular among hedge funds. Our overall hedge fund sentiment score for EA is 73.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately EA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EA were disappointed as the stock returned -0.5% since the end of the third quarter (through 12/2) 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 2020.

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