Is Facebook Inc (NASDAQ:FB) a good stock to buy right now? We will take a look at recent hedge fund and insider trading activity to answer this question. Hedge funds are in an optimistic mood. The number of bullish hedge fund bets went up by 11 recently. Facebook Inc (FB) was in 129 hedge funds’ portfolio at the end of the first quarter of 2015. There were 118 hedge funds in our database with FB holdings at the end of the previous quarter.
On the other hand, insiders have been dumping their Facebook Inc shares. On Tuesday, VP, General Counsel & Secretary Colin Stretch sold 1000 shares at an average price of $80.64 as part of a Rule 10b5-1 trading plan. He also sold another 1000 shares earlier this month. Facebook’s Chief Technology Officer Todd Schroepfer exercised options that gave him the right to acquire 25000 Facebook shares at a price of $1.85 and sold them at an average price of $79.76. These options were fully vested two years ago but Todd Schroepfer chose this month to exercise them. This transaction was also executed as part of a Rule 10b5-1 trading plan. There were several other insider sales by several other insiders over the recent months (see the entire history here).
So, who is right? In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular stocks among hedge funds returned 142% since the end of August 2012 and beat the S&P 500 Index by 83 percentage points (see the details here). This is a huge margin which is why hedge funds’ recent Facebook purchases is a strong indicator.
Academic studies have shown that certain insider purchases outperform the market by an average of 7 percentage points per year, however, the evidence is much weaker when it comes to insider sales as a signal for a stock’s future performance. Insiders usually buy their shares because they think the shares are cheap, but they sell a portion of their holdings for a bunch of different reasons such as diversification or raising cash for tax payments.
Keeping this in mind, let’s take a gander at the recent action encompassing Facebook Inc (NASDAQ:FB).
Hedge fund activity in Facebook Inc (NASDAQ:FB)
At the end of the first quarter, a total of 129 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the fourth quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully.
According to hedge fund experts at Insider Monkey, Stephen Mandel’s Lone Pine Capital had the number one position in Facebook Inc (NASDAQ:FB), worth close to $666.5 million, accounting for 2.5% of its total 13F portfolio. Coming in second is Coatue Management, led by Philippe Laffont, holding a $650.2 million position; the fund has 6.2% of its 13F portfolio invested in the stock. Other hedgies that are bullish comprise D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management.
There were several hedge funds that established brand new positions. Renaissance Technologies, founded by Jim Simons, established the biggest new position in Facebook Inc (NASDAQ:FB). Renaissance Technologies had $217.6 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also made a $74.5 million investment in the stock during the quarter. The following funds were also among the new FB investors: Alex Sacerdote’s Whale Rock Capital Management, Rob Citrone’s Discovery Capital Management, and Glen Kacher’s Light Street Capital.
Renaissance Technologies is one of the top performing hedge funds when it comes to large-cap stock picks (their picks in recent years performed even better than Warren Buffett’s picks). Is Facebook Inc (FB) a good stock to buy right now? Smart money indicators say yes.