Is Gartner Inc (IT) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Gartner Inc (NYSE:IT).

Gartner Inc (NYSE:IT) investors should be aware of a decrease in hedge fund sentiment of late. Gartner Inc (NYSE:IT) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 40. There were 40 hedge funds in our database with IT positions at the end of the first quarter. Our calculations also showed that IT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to take a look at the recent hedge fund action encompassing Gartner Inc (NYSE:IT).

Do Hedge Funds Think IT Is A Good Stock To Buy Now?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IT over the last 24 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Gartner Inc (NYSE:IT) was held by Generation Investment Management, which reported holding $816.4 million worth of stock at the end of June. It was followed by Melvin Capital Management with a $242.2 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Melvin Capital Management. In terms of the portfolio weights assigned to each position Lunia Capital allocated the biggest weight to Gartner Inc (NYSE:IT), around 7.75% of its 13F portfolio. Goodnow Investment Group is also relatively very bullish on the stock, earmarking 3.92 percent of its 13F equity portfolio to IT.

Judging by the fact that Gartner Inc (NYSE:IT) has faced bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that decided to sell off their entire stakes in the second quarter. Intriguingly, Brian Bares’s Bares Capital Management sold off the largest investment of all the hedgies watched by Insider Monkey, valued at about $53.4 million in stock. Ravee Mehta’s fund, Nishkama Capital, also cut its stock, about $25.5 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Gartner Inc (NYSE:IT). We will take a look at Fortis Inc. (NYSE:FTS), StoneCo Ltd. (NASDAQ:STNE), Avantor, Inc. (NYSE:AVTR), Halliburton Company (NYSE:HAL), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Steris Plc (NYSE:STE), and Trimble Inc. (NASDAQ:TRMB). This group of stocks’ market values match IT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $1620 million. That figure was $1989 million in IT’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 9 bullish hedge fund positions. Gartner Inc (NYSE:IT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IT is 65.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on IT as the stock returned 24.5% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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