Is Microsoft (MSFT) Stock A Buy or Sell?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Microsoft Corporation (NASDAQ:MSFT)? The smart money sentiment can provide an answer to this question.

Is Microsoft (MSFT) stock a buy or sell? Hedge funds were buying. The number of bullish hedge fund bets improved by 24 in recent months. Microsoft Corporation (NASDAQ:MSFT) was in 258 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 235. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MSFT ranks 2nd among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman Tiger Global Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 (or at the end of this article). Keeping this in mind let’s take a look at the new hedge fund action surrounding Microsoft Corporation (NASDAQ:MSFT).

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

At the end of December, a total of 258 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 189 hedge funds held shares or bullish call options in MSFT a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is TK A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in Microsoft Corporation (NASDAQ:MSFT), worth close to $5.2033 billion, comprising 3.9% of its total 13F portfolio. Sitting at the No. 2 spot is Terry Smith of Fundsmith LLP, with a $2.6851 billion position; 8.9% of its 13F portfolio is allocated to the company. Remaining peers that are bullish contain Chase Coleman’s Tiger Global Management LLC, Andreas Halvorsen’s Viking Global and Boykin Curry’s Eagle Capital Management. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Microsoft Corporation (NASDAQ:MSFT), around 28.95% of its 13F portfolio. Skye Global Management is also relatively very bullish on the stock, setting aside 25.68 percent of its 13F equity portfolio to MSFT.

As aggregate interest increased, key hedge funds were breaking ground themselves. Harvard Management Co, managed by Rick Slocum, established the largest position in Microsoft Corporation (NASDAQ:MSFT). Harvard Management Co had $182.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $166.3 million position during the quarter. The following funds were also among the new MSFT investors: Jeffrey Talpins’s Element Capital Management, Leon Shaulov’s Maplelane Capital, and Brennan Diaz’s Fernbridge Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Microsoft Corporation (NASDAQ:MSFT) but similarly valued. We will take a look at, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG), Alphabet Inc (NASDAQ:GOOGL), Alibaba Group Holding Limited (NYSE:BABA), Facebook Inc (NASDAQ:FB), Visa Inc (NYSE:V), and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). This group of stocks’ market valuations match MSFT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMZN 273 51531301 28
GOOG 157 20579318 7
GOOGL 179 21902583 17
BABA 156 17892090 -10
FB 242 38233910 12
V 166 23599162 6
TSM 72 11843403 5
Average 177.9 26511681 9.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 177.9 hedge funds with bullish positions and the average amount invested in these stocks was $26512 million. That figure was $52899 million in MSFT’s case., Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 72 bullish hedge fund positions. Microsoft Corporation (NASDAQ:MSFT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSFT is 99.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and beat the market again by 1.6 percentage points. Hedge funds were also right about betting on Microsoft as the stock returned 6.2% since the end of December (through 3/12) and outperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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